1.

1 EXECUTIVE SUMMARY

Microfinance is defined as an activity that includes the provision of financial services such as credit, savings,
and insurance to low income individuals, the activity done by micro finance is same activities which are carried
on by the commercial bank, for the common people. Micro finance is a new concept in India & this concept
is not widely used due to certain limitations like regulations by NABARD & RBI.

In India the people who live below the poverty line cannot access banks for the purposes like savings or
borrowing loans. To give same facilities which are provided by commercial bank Micro finance institution
came to existence which give same services to poor people which are provided by commercial banks.

The services provided by Microfinance Institution are like as follows:

1. Micro credit
2. Micro leasing
3. Micro savings
4. Money transfer
As India is the only country who has most of the population below the poverty line Micro finance becomes
essential as the main motive for the existence of micro finance is to eliminate poverty & to increase the
standard of living of the people. Micro finance in India can be used as an important tool which can help to
eradicate poverty in India & increase the standard of living of people.

The need of Micro finance in India is due to the following reasons

 People living below the poverty line

 Poor people cannot access commercial banks
 Poor People cannot get loans as they have no collateral
Due to this above reason Micro finance is suitable in India as micro finance institutions give loans to poor
people without collateral & the size of loan is $100 given by the micro finance institution.

1
1.2 WHAT IS MICRO-FINANCE?

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

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

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

Microfinance is defined as any activity that includes the provision of financial services such as credit, savings,
and insurance to low income individuals which fall just above the nationally defined poverty line, and poor
individuals which fall below that poverty line, with the goal of creating social value.

The creation of social value includes poverty alleviation and the broader impact of improving livelihood
opportunities through the provision of capital for micro enterprise, and insurance and savings for risk
mitigation and consumption smoothing. A large variety of sectors provide microfinance in India, using a range
of microfinance delivery methods.

Microfinance is the supply of loans, savings and other financial services to the poor. The term “micro” is in
reference to the small amounts typically involved in the practice. These services are small – “micro” – because
a person who does not have a lot of money most likely will not need a loan of several thousand dollars.

However, a loan of a few hundred dollars may make a huge difference in their lives, giving them the ability to
purchase livestock for a small farm, a sewing machine to help make accessories and clothes, or supplies for a
small store.

Microfinance is a source of financial services for entrepreneurs and small businesses lacking access to banking
and related services. The two main mechanisms for the delivery of financial services to such clients are: (1)

2
relationship-based banking for individual entrepreneurs and small businesses; and (2) group-based models,
where several entrepreneurs come together to apply for loans and other services as a group.

For some, microfinance is a movement whose object is "a world in which as many poor and near-poor
households as possible have permanent access to an appropriate range of high quality financial services,
including not just credit but also savings, insurance, and fund transfers. Many of those who promote
microfinance generally believe that such access will help poor people out of poverty

The goal of microfinance was the alleviation of poverty. For many years, microfinance had this primary social
objective and so traditional MFIs consisted only of non-governmental organizations (NGO), specialized
microfinance banks and public sector banks. More recently, the marketplace has been evolving.

Since the ICICI Bank in India, various actors have endeavoured to provide access to financial services to the
poor in creative ways. Governments also have piloted national programs, NGOs have undertaken the activity
of raising donor funds for on-lending, and some banks have partnered with public organizations or made small
inroads themselves in providing such services.

This has resulted in a rather broad definition of microfinance as any activity. The main objective of micro-
finance is to give small loans to people for their business start-up without any collateral or other security.
Micro- finance has helped to eradicate poverty in many developed countries like Bangladesh where Grameen
Bank has offered credit to hierarch of people formerly underserved: women, the poor, unemployed and
illiterate people.

Access to credit is based on reasonable terms, example as the group lending system and weekly-instalment
payments, with reasonably long terms of personal loans, enable the poor to build on their skills to earn higher
income in each cycle of personal loans.

3
 RURAL
DEVELOPMENT

LITERACY ENTREPRENEU
R

MICRO
EMPOWERM FINANCE POVERTY
ENT ELIMINATION

HIGHER RISE IN
STANDARD OF RURAL
LIVING DEMAND

EMPLOYMENT

4
1.3 HISTORY OF MICRO-FINANCE

The concept of microfinance is not new. Savings and credit groups that have operated for centuries include
the "susus" of Ghana, "chit funds" in India, "tandas" in Mexico, "arisan" in Indonesia, "cheetu" in Sri Lanka,
"tontines" in West Africa, and "pasanaku" in Bolivia, as well as numerous savings clubs and burial societies
found all over the world.

Formal credit and savings institutions for the poor have also been around for decades, providing customers
who were traditionally neglected by commercial banks a way to obtain financial services through
cooperatives and development finance institutions.

One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no
collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan
Swift. Swift's idea began slowly but by the 1840s had become a widespread institution of about 300 funds all
over Ireland. Their principal purpose was making small loans with interest for short periods. At their peak they
were making loans to 20% of all Irish households annually.

In the 1800s, various types of larger and more formal savings and credit institutions began to emerge in Europe,
organized primarily among the rural and urban poor. These institutions were known as People's Banks, Credit
Unions, and Savings and Credit Co-operatives. N Indonesia, the Indonesian People's Credit Banks (BPR) or
The Bank Perkreditan Rakyat opened in 1895. The BPR became the largest microfinance system in Indonesia
with close to 9,000 units. In the early 1900s, various adaptations of these models began to appear in parts of
rural Latin America.

While the goal of such rural finance interventions was usually defined in terms of modernizing the agricultural
sector, they usually had two specific objectives: increased commercialization of the rural sector, by mobilizing
"idle" savings and increasing investment through credit, and reducing oppressive feudal relations that were
enforced through indebtedness.

In most cases, these new banks for the poor were not owned by the poor themselves, as they had been in
Europe, but by government agencies or private banks. Over the years, these institutions became inefficient and
at times, abusive.

Between the 1950s and 1970s, governments and donors focused on providing agricultural credit to small and
marginal farmers, in hopes of raising productivity and incomes. These efforts to expand access to agricultural
credit emphasized supply-led government interventions in the form of targeted credit through state-owned
development finance institutions, or farmers' cooperatives in some cases, that received concessional loans and
on-lent to customers at below-market interest rates.

These subsidized schemes were rarely successful. Rural development banks suffered massive erosion of their
capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach
5
the poor, often ending up concentrated in the hands of better-off farmers. The history of micro-financing can
be traced back as long to the middle of the 1800s when the theorist Lysander Spooner was writing over the
benefits from small credits to entrepreneurs and farmers as a way getting the people out of poverty. But it was
at the end of World War II with the Marshall plan the concept had a big impact.

The today use of the expression micro-financing has its roots in the 1970s when organizations, such as
Grameen Bank of Bangladesh with the microfinance pioneer Mohammad Yunus, where starting and shaping
the modern industry of micro-financing. Another pioneer in this sector is Akhtar Hameed Khan. At that time
a new wave of microfinance initiatives introduced many new innovations into the sector. Many pioneering
enterprises began experimenting with loaning to the underserved people.

The main reason why microfinance is dated to the 1970s is that the programs could show that people can be
relied on to repay their loans and that it´s possible to provide financial services to poor people through market
based enterprises without subsidy. Shore bank was the first microfinance and community development bank
founded 1974 in Chicago.

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

Another organization, the caisse populaire movement grounded by Alphone and Dorimène Desjardins in
Quebec was also concerned about the poverty, and passed those two tests between 1900 to 1906 when they
founded the first caisse they passed a law governing them in the Quebec assembly, they risked their private
assets and must have been very sure about the idea about microcredit.

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

Historical context can help explain how specialized MFIs developed over the last few decades. Between the
1950s and 1970s, governments and donors focused on providing subsidized agricultural credit to small and
marginal farmers, in hopes of raising productivity and incomes. During the 1980s, micro-enterprise credit
concentrated on providing loans to poor women to invest in tiny businesses, enabling them to accumulate
assets and raise household income and welfare. These experiments resulted in the emergence of
nongovernmental organizations (NGOs) that provided financial services for the poor.

6
WHAT IS A MICRO-FINANCE INSTITUTION?

MICRO CREDIT

MICRO MICRO
LEASING INSURANCE
MICRO
FINANCE
INSTITUTION

MONEY MICRO
TRANSFER SAVINGS

7
A microfinance institution (MFI) is an organization that provides microfinance services loans, savings, maybe
even insurance which are not accessible to poor people in traditional financing institutions. An MFI can operate
as a non-profit such as a non-government organization (NGO), credit cooperative, non-bank financial
institution (NBFI), or even a formal, regulated for profit bank. Micro- finance institutions (MFIs) are the
organizations which provide various micro- finance products and services the products and services provided
by microfinance institution (MFI) are as follows:

MFIs differ in size and reach; some serve a few thousand clients in their immediate geographical area, while
others serve hundreds of thousands, even millions, in a large geographical region, through numerous branches.
Many MFIs offer services beyond loans and savings, including education on business and financial issues and
social services focused on health and children.

Historical context can help explain how specialized MFIs developed over the last few decades. Between the
1950s and 1970s, governments and donors focused on providing subsidized agricultural credit to small and
marginal farmers, in hopes of raising productivity and incomes.

During the 1980s, micro-enterprise credit concentrated on providing loans to poor women to invest in tiny
businesses, enabling them to accumulate assets and raise household income and welfare. These experiments
resulted in the emergence of nongovernmental organizations (NGOs) that provided financial services for the
poor. In the 1990s, many of these institutions transformed themselves into formal financial institutions in order
to access and on-lend client savings, thus enhancing their outreach."

Microfinance institutions are perhaps one of the most important vehicles to reach the rural poor. These
institutions can act as very important tool to provide the rural entrepreneurs with micro-loans, which will help
them to start their own businesses and sustain them. One advantage that these institutions have over other
financial services delivery vehicles is the focus. There are many examples of MFIs that has done some stellar
work in this area such as ACCION International, BancoSol and Grameen Bank. These institutions have helped
many people in enhancing their lives and achieving a decent social status in the societies that they are living
in.

8
 1.4. ADVANTAGES OF MICRO- FINANCE

Microfinance involves extending small loans, savings and other basic financial services to people that don’t
currently have access to capital. It’s a key strategy in helping people living in poverty to become financially
independent, which helps them become more resilient and better able to provide for their families in times of
economic difficulty. Here are the benefits of microfinance:

1. Access Banks simply won’t extend loans to those with little or no assets, and generally don’t engage in the
small size of loans typically associated with micro-financing. Micro-financing is based on the philosophy that
even small amounts of credit can help end the cycle of poverty.

2. Better loan repayment rates Microfinance tends to target women borrowers, who are statistically less likely to
default on their loans than men. So, these loans help empower women, and they are often safer investments
for those loaning the funds.

3. Extending education Families receiving micro-financing are less likely to pull their children out of school for
economic reasons.

4. Improved health and welfare Micro-financing can lead to improved access to clean water and better sanitation
while also providing better access to health care.

5. Sustainability Even a small working capital loan of $100 can be enough to launch a small business in a
developing country that could help the benefactor pull themselves and their family out of poverty.

6. Job creation Micro-financing can help create new employment opportunities, which has a beneficial impact
on the local economy.

7. Micro- finance targets rural areas as majority of population which is poor in India lives in rural areas.

9
 1.5. DISADVANTAGES OF MICRO-FINANCE

1. Financial illiteracy-
One of the major hindrances in the growth of the microfinance sector is the financial illiteracy of the people.
This makes it difficult in creating awareness of microfinance and even more difficult to serve them as
microfinance clients. Though most of the microfinance institutions claim to have educational trainings and
programmers for the benefit of the people, according to some of the experts the first thing these SHG and
JLG members are taught is to do their own signature. The worst part is that many MFIs think that this is
what financial literacy means.

2. Inability to generate sufficient funds-

Inability of MFIs to raise sufficient fund remains one of the important concern in the microfinance sector.
Though NBFCs are able to raise funds through private equity investments because of the for-profit motive,
such MFIs are restricted from taking public deposits. Not-for-profit companies which constitute a major
chunk of the MFI sector have to primarily rely on donations and grants from Government and apex
institutions like NABARD and SIDBI.

3. Dropouts and Migration of group members-

Majority of the microfinance loans are disbursed on group lending concept and a past record of the group
plays an important role in getting new loans either through SHG-Bank linkage or through MFIs. The two
major problems with the group concept are dropouts and migration.

4. Interest Rates-
One of the principal challenges of microfinance is providing small loans at an affordable cost. The global
average interest and fee rate is estimated at 37%, with rates reaching as high as 70% in some markets. The
reason for the high interest rates is not primarily cost of capital. Indeed, the local microfinance organizations
that receive zero-interest loan capital from the online micro lending platform. The high costs of traditional
microfinance loans limit their effectiveness as a poverty-fighting tool.

10
5. Use of Loans –
Practitioners and donors from the charitable side of microfinance frequently argue for restricting micro credit
to loans for productive purposes–such as to start or expand a micro enterprise. Those from the private-sector
side respond that because money is fungible, such a restriction is impossible to enforce, and that in any case it
should not be up to rich people to determine how poor people use their money.

6. Lack of Capacity to Promote-

After a group has been promoted, continuous efforts are needed to monitor these groups and strengthen their
internal capacity to undertake administrative BFIL(accounting, meeting minutes, correspondence, and
negotiations with bankers) and commercial activities (business start-ups, marketing, and reinvestment.

7. Regulatory Reasons-
Due to regulatory reasons, only a handful of microfinance institutions (MFIs) were able in promoting mutual
savings among groups and a few NGO MFIs offer savings services by taking deposits from their members.
Others have had to use mutual benefit trusts or mutually aided cooperative societies (MACS). Only the
SEWA Bank, Ahmedabad and the BASIX local area bank KBSLAB (in three districts of AP and Karnataka)
offer savings as RBI regulated entities.

11
1.6. LEGAL RULES & REGULATIONS

Banks in India are regulated and supervised by the Reserve Bank of India (RBI) under the RBI Act of 1934,
Banking Regulation Act, Regional Rural Banks Act, and the Cooperative Societies Acts of the respective state
governments for cooperative banks. NBFCs are registered under the Companies Act, 1956 and are governed
under the RBI Act. There is no specific law catering to NGOs although they can be registered under the
Societies Registration Act, 1860, the Indian Trust Act, 1882, or the relevant state acts.

There has been a strong reliance on self-regulation for NGO MFIs and as this applies to NGO MFIs mobilizing
deposits from clients who also borrow. This tendency is a concern due to enforcement problems that tend to
arise with self-regulatory organizations.

There are various types of microfinance institutions/organizations operating in India. Mainly they are like Joint
Liability Group (JLG), Self Help Group (SHG), the Grameen Bank Model and Rural Cooperatives etc. Having
main aim of financial inclusion of smallest person of the society.

The main area of its operation is confined to the poorer section of the country, over-indebtedness is a
common and serious challenge faced by the MFIs. The members have generally borrowed the funds from
other available sources. There are some of the other challenges also and they are like

 High rates of interest being charged to members.

 Over-dependence on the banking system to procure the funds for MFI business
 Illiteracy and lack of awareness by the members (borrowers) as they are largely from a rural

The legal framework for MFIs in India with reference to its registration and other parameters can be broadly
narrated as under :

1. For Societies – Registration for this is a very easy process with no minimum capital requirement.
Further, they are not allowed for deposit mobilization/ collection from the public. It has to operate
amongst its members only.

2. For Trust—Registration for this is very easy with no minimum capital requirement. It is not allowed
for deposit mobilization/ collection from the public. It is sometimes problematic as the funds for
further expansion may not be available. It has limited scope for expansion.

12
 3. For Sec. 25 Companies—Registration is easy but not that easy as those of trusts and societies,
especially for an existing company to convert into a Section 25 company. It is not allowed for deposit
mobilization/ collection from the public. However, it contributes a lot to the process of financial
inclusion.

4. For NBFC-MFI— Registration for this is to be taken up with RBI and it is difficult to obtain due to
stringent provisions of the RBI. It requires minimum capital of Rs. 5 crores (Rs. 2 crores for North-
East India region) to start MFI operations. It is not allowed for deposit mobilization/ collection from
the public. It has a large scope and provides a good background for scaling up of the operations as it
has investors’ confidence with it. It is observed that many MFIs in India, especially in South India and
West Bengal, have grown and developed its activities/ operation remarkably is a strict regulator for
MFIs and it monitors very closely from time to time.

5. For Cooperative Societies— Registration for this is very easy (except in the state of Maharashtra)
with the minimum capital requirement. It has very minimal regulatory requirements to fulfil in this
matter. It is allowed to collect the deposits from its members only. It is relatively easy to scale up/
expand its activities. It is observed that many cooperative societies in Maharashtra and South India
have progressed very much in terms of size and activities undertaken.

There are many structural weaknesses of RRBs, cooperative societies, and urban cooperative banks, thus the
microfinance movement has a remarkable presence in the Indian credit market. However, the RBI has
clearly specified the regulatory framework for MFI which guide them to function smoothly and it is
summarized as below:

As per the RBI, NBFC – Microfinance Institutions means a non-deposit taking NBFC (other than a company
formed and registered under section 25 of the Companies Act 1956 that fulfils the necessary conditions
pertaining to minimum net owned funds, net assets criteria, qualifying assets criteria and other incidental
requirements related to the loan disbursement to the members. The regulatory guidelines of RBI help a lot to
grow, expand and develop the MFIs in a systemic way.

13
 1.7. TYPES OF MICRO-FINANCE MODELS & ORGANIZATIONS IN INDIA

TYPES OF MODELS

Micro- finance Institutions (MFIs) are an extremely heterogeneous group comprising NBFCs, societies, trusts
and cooperatives. They are provided financial support from external donors and apex institutions including
the Rashtriya Mahila Kosh (RMK), SIDBI Foundation for micro-credit and NABARD and employ a variety
of ways for credit delivery.

Since 2000, commercial banks including Regional Rural Banks have been providing funds to MFIs for on
lending to poor clients. Though initially, only a handful of NGOs were “into” financial intermediation using a
variety of delivery methods, their numbers have increased considerably today. While there is no published
data on private MFIs operating in the country, the number of MFIs is estimated to be around 800.

1. Bank Partnership Model

This model is an innovative way of financing MFIs. The bank is the lender and the MFI acts as an agent for
handling items of work relating to credit monitoring, supervision and recovery. In other words, the MFI acts
as an agent and takes care of all relationships with the client, from first contact to final repayment. The model
has the potential to significantly increase the amount of funding that MFIs can leverage on a relatively small
equity base.

A sub - variation of this model is where the MFI, as an NBFC, holds the individual loans on its books for a
while before securitizing them and selling them to the bank. Such refinancing through securitization enables
the MFI enlarged funding access.

BANK MFI CLIENT

In this diagram we see that a MFI acts as anas an agent for handling items of work relating to
credit monitoring, supervision and recovery. In other words, the MFI acts as an agent and takes
care of all relationships with the client, from first contact to final repayment

14
2. Banking Correspondents Model

The proposal of “banking correspondents” could take this model a step further extending it to savings. It would
allow MFIs to collect savings deposits from the poor on behalf of the bank.

It would use the ability of the MFI to get close to poor clients while relying on the financial strength of the
bank to safeguard the deposits.

This regulation evolved at a time when there were genuine fears that fly-by-night agents purporting to act on
behalf of banks in which the people have confidence could mobilize savings of gullible public and then vanish
with them. It remains to be seen whether the mechanics of such relationships can be worked out in a way that
minimizes the risk of misuse.

In this diagram we see

BANK that MFI collect saving
deposits from poor on
behalf of the bank
while clients rely on the
financial strength of
bank to safe guard their
MFI deposits

CLIENT CLIENT CLIENT

15
3. Service Company Model

BANK

MFI formed by bank

Branches of bank
Branches of
bank

CLIENTS
CLIENTS CLIENTS

Bank forms its own MFI the MFI uses the branch network of the bank as its outlets to
reach clients. This allows the client to be reached at lower cost than in the case of a
stand–alone MFI

16
Under this model, the bank forms its own MFI, perhaps as an NBFC, and then works hand in hand with that
MFI to extend loans and other services. On paper, the model is similar to the partnership model: the MFI
originates the loans and the bank books them. But in fact, this model has two very different and interesting
operational features:

The MFI uses the branch network of the bank as its outlets to reach clients. This allows the client to be
reached at lower cost than in the case of a stand–alone MFI. In case of banks which have large branch networks,
it also allows rapid scale up.

In the partnership model, MFIs may contract with many banks in an arm’s length relationship. In the service
company model, the MFI works specifically for the bank and develops an intensive operational cooperation
between them to their mutual advantage.

The Partnership model uses both the financial and infrastructure strength of the bank to create lower cost
and faster growth. The Service Company Model has the potential to take the burden of overseeing
microfinance operations off the management of the bank and put it in the hands of MFI managers

This manager is focused on microfinance to introduce additional products, such as individual loans for SHG
graduates, remittances and so on without disrupting bank operations and provide a more advantageous cost
structure for microfinance.

17
4. Bank Led Model

Bank

MFI

SHG

CLIENT CLIENT CLIENT

The bank led model was derived from the SHG-Bank linkage program of NABARD. Through this program,
banks financed Self Help Groups (SHGs) which had been promoted by NGOs and government agencies. ICICI
Bank drew up aggressive plans to penetrate rural areas through its SHG program.

However, rather than spending time in developing rural infrastructure of its own, in 2000, ICICI Bank
announced merger of Bank of Madura (BoM), which had significant presence in the rural areas of South India,
especially Tamil Nadu, with a customer base of 1.9 million and 87 branches.

Bank of Madura's SHG development program was initiated in 1995. Through this program, it had formed,
trained and initiated small groups of women to undertake financial activities like banking, saving and lending.
By 2000, it had created around 1200 SHGs across Tamil Nadu and provided credit to them.

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 TYPES OF ORGANIZATIONS

These organizations are classified in the following categories to indicate the functional aspects covered by
them within the micro- finance framework. The aim, however, is not to "typecast" an organization, as these
have many other activities within their scope:

Microfinance providers in India can be classified under three broad categories: formal, semiformal, and
informal.

1. Formal Sector

The formal sector comprises of the banks such as NABARD, SIDBI and other regional rural banks (RRBs).
They primarily provide credit for assistance in agriculture and micro-enterprise development and primarily
target the poor.

Their deposit at around Rs.350 billion and of that, around Rs.250 billion has been given as advances. They
charge an interest of 12-13.5% but if we include the transaction costs (number of visits to banks, compulsory
savings and costs incurred for payments to animators/staff/local leaders etc.) they come out to be as high as
21-24%.

2. Semi - formal Sector

The majority of institutional microfinance providers in India are semi-formal organizations broadly referred
to as MFIs. Registered under a variety of legal acts, these organizations greatly differ in philosophy, size, and
capacity. There are over 500 non-government organizations (NGOs) registered as societies, public trusts, or
non-profit companies. Organizations implementing micro-finance activities can be categorized into three basic
groups.

I. Organizations which directly lend to specific target groups and are carrying out all related activities like
recovery, monitoring, follow-up etc.

II. Organizations who only promote and provide linkages to SHGs and are not directly involved in micro
lending operations.

III. Organizations which are dealing with SHGs and plan to start micro-finance related activities.

19
 3. Informal Sector

In addition to friends and family, moneylenders, landlords, and traders constitute the informal sector. While
estimates of their importance vary significantly, it is undeniable that they continue to play a significant role in
the financial lives of the poor. These are the organizations that provide support to implementing organizations.

The support may be in terms of resources or training for capacity building, counselling, networking, etc. They
operate at state/regional or national level. They may or may not be directly involved in micro-finance activities
adopted by the associations/collectives to support implementing Organizations.

4. Grameen Bank

The Grameen Model which was pioneered by Prof MuhammedYunus of Grameen Bank is perhaps the most
well-known, admired and practiced model in the world. The model involves the following elements.

o Homogeneous affinity group of five

o Eight groups form a Centre
o Centre meets every week
o Regular savings by all members
o Loan proposals approved at Centre meeting
o Loan disbursed directly to individuals
o All loans repaid in 50 instalments

The Grameen model follows a fairly regimented routine. It is very cost intensive as it involves building
capacity of the groups and the customers passing a test before the lending could start. The group members
tend to be selected or at least strongly vetted by the bank. One of the reasons for the high cost is that staff
members can conduct only two meetings a day and thus are occupied for only a few hours, usually early
morning or late in the evening.

They were used additionally for accounting work, but that can now be done more cost effectively using
computers. The model is also rather meeting intensive which is fine as long as the members have no alternative
use for their time but can be a problem as members go up the income ladder.

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1.8. MICROFINANCE AND WOMEN EMPOWERMENT

Women as micro and small entrepreneurs have increasingly become the key target group for micro finance
programs. Consequently, providing access to micro finance facilities is not only considered a pre-condition
for poverty alleviation, but also considered as a strategy for empowering women. In developing countries like
INDIA micro finance is playing an important role, promoting gender equality and is helping in empowering
women so that they can live quality life with dignity.

The study conducted by FINCA Client Poverty Assessment conducted in 2003 revealed that of the interviewed
client’s 81 percent were women, and it was found that food security was 15 percent higher among their village
banking clients than non-clients. The report also showed clients to have 11 percent more of their children
enrolled in school with an 18 percent increase in healthcare benefits. Clients‟ housing security was reported
as 18 percent higher than non-clients. The assessment concluded that microfinance improved the wellbeing of
women clients and their families.

Microfinance has a positive effect on the empowerment of women by creating an “empowerment indicator”.
These indicators can be based on the following factors:

Mobility.

Economic security- enables poor women in making them economic agents of change by increasing their
income and productivity.

Ability to make small purchases.

Ability to make larger purchases.

Involvement in major household decisions.

Relative freedom from domination within the family.

Political and legal awareness.

Involvement in political campaigning and protests.

To access to markets and information.

They become more confident.

They get a better control of the resources.

21
EMPOWERMENT: FOCUS ON POOR WOMEN

Women have been the vulnerable section of society and constitute a sizeable segment of the poverty-struck
population. Women face gender specific barriers to access education health, employment etc. Micro finance
deals with women below the poverty line. Micro loans are available solely and entirely to this target group of
women. There are several reason for this: Among the poor , the poor women are most disadvantaged –they are
characterized by lack of education and access of resources, both of which is required to help them work their
way out of poverty and for upward economic and social mobility.

The problem is more acute for women in countries like India, despite the fact that women’s labour makes a
critical contribution to the economy. This is due to the low social status and lack of access to key resources.
Evidence shows that groups of women are better customers than men, the better managers of resources. If
loans are routed through women benefits of loans are spread wider among the household. Since women’s
empowerment is the key to socio economic development of the community; bringing women into the
mainstream of national development has been a major concern of government.

The ministry of rural development has special components for women in its programmes. Funds are earmarked
as “Women’s component” to ensure flow of adequate resources for the same. Besides
SwarnagayantiGrameenSwarazgarYojona (SGSY), Ministry of Rural Development is implementing other
scheme having women’s component .They are the Indira Aswayuja (IAJ),National Social Assistance
Programme (NSAP), Restructured Rural Sanitation Programme, Accelerated Rural Water Supply programme
(ARWSP) the (erstwhile) Integrated Rural Development Programme (IRDP), the (erstwhile) Development of
Women and Children in Rural Areas (DWCRA) and the JowaharRozgarYojana (JRY).

Micro Finance is emerging as a powerful instrument for poverty alleviation in the new economy. In India,
micro finance scene is dominated by Self Help Groups (SHGs) – Bank Linkage Programme, aimed at
providing a cost effective mechanism for providing financial services to the “unreached poor”. Based on the
philosophy of peer pressure and group savings as collateral substitute , the SHG programme has been
successful in not only in meeting peculiar needs of the rural poor, but also in strengthening collective self-help
capacities of the poor at the local level, leading to their empowerment.

Micro Finance for the poor and women has received extensive recognition as a strategy for poverty reduction
and for economic empowerment. Increasingly in the last five years , there is questioning of whether micro
credit is most effective approach to economic empowerment of poorest and, among them, women in particular.
Development practitioners in India and developing countries often argue that the exaggerated focus on micro

22
finance as a solution for the poor has led to neglect by the state and public institutions in addressing
employment and livelihood needs of the poor.

Credit for empowerment is about organizing people, particularly around credit and building capacities to
manage money. The focus is on getting the poor to mobilize their own funds, building their capacities and
empowering them to leverage external credit.

Perception women is that learning to manage money and rotate funds builds women’s capacities and
confidence to intervene in local governance beyond the limited goals of ensuring access to credit. Further, it
combines the goals of financial sustainability with that of creating community owned institutions. Before
1990‟s, credit schemes for rural women were almost negligible. The concept of women’s credit was born on
the insistence by women oriented studies that highlighted the discrimination and struggle of women in having
the access of credit. However, there is a perceptible gap in financing genuine credit needs of the poor especially
women in the rural sector.

There are certain misconception about the poor people that they need loan at subsidized rate of interest on soft
terms, they lack education, skill, capacity to save, credit worthiness and therefore are not bankable.
Nevertheless, the experience of several SHGs reveals that rural poor are actually efficient managers of credit
and finance. Availability of timely and adequate credit is essential for them to undertake any economic activity
rather than credit subsidy.

The Government measures have attempted to help the poor by implementing different poverty alleviation
programmes but with little success. Since most of them are target based involving lengthy procedures for loan
disbursement, high transaction costs, and lack of supervision and monitoring. Since the credit requirements of
the rural poor cannot be adopted on project lending app roach as it is in the case of organized sector, there
emerged the need for an informal credit supply through SHGs. The rural poor with the assistance from NGOs
have demonstrated their potential for self-help to secure economic and financial strength. Various case studies
show that there is a positive correlation between credit availability and women’s empowerment

23
BHARAT FINANCIAL INCLUSION LIMITED

24
 BHARAT FINANCIAL INCLUSION LIMITED

INTRODUCTION OF THE COMPANY

Bharat Financial Inclusion Limited (BFIL) is a non-banking finance company (NBFC), regulated by
the Reserve Bank of India. BFIL mission is to provide financial services to the poor under the premise that
providing financial services to poor borrowers helps to alleviate poverty. The company operates across 19 of
29 Indian states. BFIL was founded in 1997 by Vikram Akula, who has served as its executive chair until
November 2011. BFIL uses the group lending model where poor women guarantee each other’s loans.
Borrowers undergo financial literacy training and must pass a test before they are allowed to take out loans.
Weekly meetings with borrowers follow a highly disciplined approach. Re-payment rates on our collateral-
free loans are more than 99% because of this systematic process. BFIL also offers micro-insurance to the poor
as well as financing for other goods and services that can help them combat poverty.

The company’s management includes Mr. Sudershan Pallap, Mr. Ashish Damani, Mr. Rajendra Patil, Mr. S
Dilli Raj, Mr. Sudershan Pallap, Dr. Punita Kumar Sinha, Dr. Tarun Khanna, Mr. Geoffrey Tanner Woolley,
Mr. K G Alai, Mr.M R Rao, Mr. P H Ravikumar, Mr. Paresh Patel, Mr. S Balachandran, Mr. Sumir Chadha.
Company has S R Batliboi & Co. LLP as its auditors.

25
BOARD OF DIRECTORS

1. P.H. Ravi Kumar, Non-Executive Chairperson

P.H. Ravikumar is a commercial banker with over 39 years of experience in the financial services sector. He
was part of the core team which set up and built ICICI Bank Limited from inception. In banking, his experience
spans the areas of retail, corporate and treasury banking in India and abroad. At ICICI Bank, his responsibilities
included business strategy as also risk management and he helped this unit become an industry leader in a
short span of time. As the Head of SME & Agri Business in the merged ICICI Bank, his role included building
and growing the bank’s portfolio in these sectors both on liabilities as well as on assets side, apart from services
to these sectors. In its first full year of functioning, the bank emerged as the second largest lender to the agri
business sector in India, with disbursements of over INR 200 crores (USD 42 million). He was also the founder
Managing Director and CEO of National Commodities & Derivatives Exchange Ltd. He and his team
conceptualized and set up the Exchange.

2. M .R. Rao, CEO & Managing Director

M.R’s expertise lies in managing operations in a large business environment, formulating business strategies
and identifying new markets. An alumni of BITS Pilani, he has over 25 years of experience in Profit Centre
Management, setting up distribution in Insurance, Retail Banking and Consumer Finance. Prior to BFIL, he
was associated with ING Vysya Life Insurance, American Express, Standard Chartered Bank and Esanda
Finanz & Leasing Limited. MR joined BFIL in October 2006 and has been at the forefront, driving its rural
distribution reach and scale-up. MR shouldered the responsibility of combating the AP MFI crisis and
insulating the non-AP operations from the contagion risk. He held the executive management team together

26
3. S. Balachandran, Independent Director

S. Balachandran has 35 years of experience in the Government and Corporate Sector including an overseas
assignment. Among the key positions held by him in the past are: Additional Member (Budget), Ministry of
Railways; Managing Director, Indian Railway Finance Corporation; Joint Director in the office of the
Comptroller and Auditor General of India. He is presently on the Boards of Dredging Corporation of India,
PTC India Limited, PTC Energy Limited, ONGC Petro Additions Limited and United Stock Exchange Limited
(SEBI nominee)

4. Sanjay Jain, Nominee Director, SIDBI

Sanjay Jain has over two and a half decades of experience in financing of MSMEs. A qualified Cost
Accountant and Commerce Graduate, Sanjay Jain started his career with Small Industries Development Bank
of India (SIDBI). He has extensive experience at the grassroots, regional and national levels in SSI/ MSME
finance. His areas of specialization include end-to-end MSME finance. Promotional and development
initiatives for MSMEs, Multi-level coordination with various stake holders in MSMEs space is another major
focus area. He currently heads the Hyderabad Regional office of SIDBI and oversees its operations in the
states of Andhra Pradesh, Telangana, Karnataka, Odisha and Chhattisgarh

27
5. Dr. Punita Kumar Sinha, Independent Director

Dr. Punita Kumar-Sinha, 52, is an Independent Director of our Company. Ms. Punita Kumar-Sinha is the
Founder and Managing Partner, Pacific Paradigm Advisors, an independent investment advisory and
management firm. Prior to founding Pacific Paradigm Advisors in 2012, Ms. Kumar-Sinha was Head of

Blackstone Asia Advisors (BAA) L.L.C. and its Chief Investment Officer, and was a Senior Managing
Director of The Blackstone Group L.P.

Ms. Kumar-Sinha has twenty five years of experience in fund management in emerging markets, being one of
the first foreign investors into India. Before joining Blackstone, Ms. Kumar-Sinha was a Managing Director
at Oppenheimer Asset Management Inc., and CIBC World Markets. She has also been a Portfolio Manager on
the emerging markets team at Batterymarch (a Legg Mason company), and on the international equity team at
Standish Ayer & Wood (a BNY Mellon company)

6. Rajender Mohan Malla, Additional & Independent Director

Mr. Rajender Mohan Malla had done post-graduation in Commerce (M. Com), Masters in Business
Administration (MBA), National Management Programme (PGDBM). In addition to this, he has been a
member of Certified Associate of Indian Institute of Bankers (CAIIB). He started his professional career as
Banker in 1975 as an Assistant Manager at Syndicate Bank and rose to become Chairman and Managing
Director of IDBI Bank. Post retirement, he was appointed as Managing Director & CEO of PTC India
Financial Services Limited, a subsidiary of PTC India Limited for about two (2) years till May 2015. During
his career spanning 40 years in the Banking Industry, Mr. Malla held top and significant decision-making
positions in Banks, Financial Institutions & NBFCs in India viz., IDBI Bank Limited, SIDBI, IFCI, PTC India
Financial Services Limited, IDBI (as Development Financial Institution) and Syndicate Bank

28
METHODOLOGY

Bharat Financial Inclusion Limited follows the Joint Liability Group (JLG) model. This it does without any
bias of caste or religion. The methodology involves lending to individual women, utilizing five member groups
where all the members of the groups serve as guarantors for each other.

Bharat Financial Inclusion Limited’s approach is to provide financial services at the doorstep of its members
in villages and urban colonies. This system provides convenience and saves time and cost of travel to
mainstream banks and enables Company employees to provide timely service by way of disbursements and
collection facility to its members.

Bharat Financial Inclusion Limited’s loan sizes are designed keeping the cash flows of its members and their
repayment capacity. The weekly collection facility is welcomed by Bharat Financial Inclusion Limited
members considering their daily cash flows, absence of proper saving mechanisms, the time and costs involved
in traveling to the banks to deposit their daily savings. Initially, members are offered small loans to inculcate
the habit of daily savings, credit and center discipline. Interest and loan repayments designed for ease of
understanding and repayment.

In all the processes from village selection, selection of members, training of members, loan disbursal and
instalment collections, Bharat Financial Inclusion Limited follows a well-defined, transparent process in its
operations. Details of Bharat Financial Inclusion Limited’s operational methodology are captured below

1. Village Selection
Before starting operations, Company employees conduct village surveys to evaluate local conditions like
population, poverty level, road accessibility, political stability and means of livelihood.

2. Projection Meeting

After a village is selected, Company employee introduces the Company, its purpose, terms of association, its
methodology, products and services to all the village folk to enable them to take an informed decision. The
attendees to the meeting are encouraged to make enquiries with other existing members and understand
Company’s operations before making decision to become Company’s members/ borrowers.

3. Group Formation
Women form self-selected five-member groups to serve as guarantors for each other. Experience has shown
that a five-member group is small enough to effectively enforce group peer support and, if necessary, large
enough to cover repayments in case a member needs assistance.

29
4. Compulsory Group Training (CGT)
CGT is a two-day process consisting of three-hour-long sessions designed to educate clients on Bharat
Financial Inclusion Limited’s processes and procedures and build a culture of credit discipline. Using
innovative visual and participatory teaching methods, Bharat Financial Inclusion Limited’s employees
introduce clients to the Company’s financial products and delivery methods. CGT also teaches clients about
the importance of collective responsibility, how to select group leaders, how to sign and a pledge that serves
as a verbal commitment of the members towards their Centre and their fellow members. During this training
period, Company employees collect quantitative data on each client to ensure the qualification requirements
are met, as well as record base-line information for future analysis. On the second day, clients take a “Group
Recognition Test” conducted by the Branch Manager. On clearing this verbal test, they are officially accepted
as Company members.

5. Centre Meetings

A Centre can commence operations with a minimum of 4 groups (20 members) and a maximum of 10 groups
(50) members. These Centre Meetings are conducted weekly at fixed locations convenient to all the members.
All financial transactions are conducted at the Centre Meetings in the presence of all the members. Meetings
are held early in the morning, to minimize interference with the daily activities of the clients.

A Centre Leader and a Deputy Centre Leader are selected to facilitate meetings and ensure compliance with
the Company procedures. In addition to financial transactions, members use the weekly meetings to discuss
new loan applications. Centre meetings are conducted with rigid discipline to sustain the environment of credit
discipline created during CGT.

6. Loan Utilization Checks

Cash loans are given to the members to be utilized only for Income Generation Activities and not for
consumption. The loans given to the members are verified by the staff of Bharat Financial Inclusion Limited
to check if the same have been utilized for stated purposes only. Members are advised to utilize the loan
amount within a maximum period of 30 days failing which they would be required to return the loan amount
to the Company.

30
METHODOLOGY PROCESS

Source : http://www.bfil.co.in/methodology/

31
PRODUCT & SERVICES

1. Income Generation Loans (IGL) – Aarambh:

Loans range from Rs. 9,100 to Rs. 20,010 for the first loan; subsequent loan amounts determined by past credit
history and increased each in set increments up to a maximum of Rs. 29,565. Term of the loan is 50 weeks
with principal and interest payments due on a weekly basis 19.75 % annual effective interest rate and
processing fee of 1%.

Benefits : Provides self-employed women financial assistance to support their business enterprises, such as
raising livestock, running local retail shops called kirana stores, providing tailoring and other assorted trades
and services.

2. Mid-Term Loan (MTL) – Vriddhi:

Loans range from Rs. 9,100 to Rs. 15,010 for the first loan; subsequent loan amounts determined by past credit
history and increased each in set increments up to a maximum of Rs. 15,010. Available any time after the
completion of 19th weeks & till 46th weeks of an IGL cycle and till 96th week of LTL cycle. Term of the loan
is 50 weeks with principal and interest payments due on a weekly basis 19.75% annual effective interest rate
and processing fee of 1%.

Benefits : Provides self-employed women financial assistance to support their business enterprises, such as
raising livestock, running local retail shops called kirana stores, providing tailoring and other assorted trades
and services.

3. Mobile Loan/ Solar Loan / Biomass Cook- stove Loan :

Loan amount ranges from Rs. 1,799 to Rs. 5,290. Loan tenure is 25 weeks Annualized Interest rate ranges
from 19.60 % to 19.70% depending on the product.

Benefits : Loans are offered to members for purchase of products like cook-stove/ solar light/ water purifier/
mobile phone/ bicycle and sewing machine to enhance their productivity and income generation ability.

32
4. Long Term Loan (LTL) :

Loans range from Rs. 30,915 to Rs. 38,635 for the first cycle loan; subsequent loan amounts determined by
past credit history and increased each in set increments up to a maximum of Rs. 49,785. Term of the loan is 2
years 104 weeks with principal and interest payments due on a weekly basis. 19.75 annual effective interest
rate and 1% processing fee of loan amount disbursed.

Benefits : Provides self-employed women financial assistance to support their business enterprises, such as
raising livestock, running local retail shops called ‘kirana’ stores, providing tailoring and other assorted trades
and services.

5. Gold Loan :

Gold Loan pilot launched under the name of “Swarnapushpam” provide personal/business loans to our
members for meeting their short-term liquidity requirements loans secured by gold jewellery ranging from
Rs.2000 to Rs.1,00,000 extended to 40 branches across states of Karnataka, Maharashtra and UP gold Loan
portfolio stood at Rs 55.9 crore, representing 2.4% of total outstanding loan portfolio at the end.

6. Solar Lamps Financing Programs :

Indian homes traditionally use kerosene lamps to light up their homes prolonged exposure to fumes and
harmful particles dangerous to health BFIL partnered with D. light solar to make solar lamps available to its
member’s initiative in 10 branches across 2 states, estimated to reach 475 branches.

33
OPERATIONAL PERFORMANCE & FINANCIAL HIGHLIGHTS

Operational Highlights March - 15 March - 16 March - 17 March - 18

No. of Branches 1,268 1,324 1,399 1,567
No. of Districts 314 323 322 342
No. of Employees 9,698 11,991 14,755 16,021
No. of Members (in lakh) 64.0 69.7 67.0 72.7
Disbursements for the year (Rs. in crore) 6,890.8 12,087.8 14,666 18,472
Gross Loan Portfolio (Rs. in crore) 4,184.5 7,688 9,149 12,594

Financial Highlights March - 15 March - 16 March - 17 March - 18

Incremental Borrowings ( Rs. in crore) 5,561 8,309 8,022 12,401
Total Revenue ( Rs. in crore) 803.1 1,320.7 1,727.9 2,102
Profit After Tax ( Rs. in crore) 187.7 303 289.7 455.5
Total Assets ( Rs. in crore) 4,698.7 7,153.7 10,417.6 11,530.7
Return on Average Asset 4.3% 4.2% 0.8% 2.8%
Return on Average Equity 21.6% 25.1% 3.9% 14.3%

The Company's Gross Loan Portfolio in states other than Andhra Pradesh and Telangana increased at a CAGR
of 45.6% from ₹1,320.0 crore as on March 31, 2012 to ₹12,594.4 crore as on March 31, 2018. Further, average
loan recovery rates was at 98.7% for FY18 for all loans and 99.8% for loans disbursed since January 1, 2017.

34
INVESTMENT PARTNERS

Bharat Financial Inclusion Limited is honoured to work with a world class group of partners and supporters.
When it started out as a small NGO, BFIL received early support from close friends and family of the founder.
As the organisation grew, so did its list of partners, starting with leading foundations and donor organisations,
like Women’s World Banking (www.swwb.org), CGAP (www.cgap.org), Grameen Foundation USA
(www.gfusa.org) and American India Foundation (www.aifoundation.org). Now as a Non-Banking Financial
Company – Micro Finance Institution (NBFC-MFI) registered and regulated by the Reserve Bank of India,
some of the largest banks and investors work with BFIL. HSBC (www.hsbc.com) made its first microfinance
loan to BFIL and Citibank made its first microfinance loan in India to BFIL. BFIL is also an active participant
in global microfinance associations, such as MIX Market (www.mixmarket.org) and Microfinance Network
(www.mfnetwork.org).

BANKERS

35
NET WORTH OF BHARAT FINANCIAL INCLUSION LTD.

NET WORTH
3500

2999
3000

2447
2500
Amoutn in crore

2000

1500 1383

1046
1000

500

0
2015 2016 2017 2018
Financial Year

The net worth of Bharat Financial Inclusion Ltd. in financial year 2015 was Rs 1,046 crores. In financial year
2016 the net worth expanded to Rs 1,383 crores. In financial year 2017 the net worth of Bharat Financial
Inclusion boosted up to Rs. 2,447 crores. In financial year the net worth of Bharat Financial Inclusion reached
to Rs. 2,999 crores.

36
DISBURSEMENTS OF BHARAT FINANCIAL INCLUSION LTD.

In financial year 2014 the company disbursed loans of Rs. 4,788 crores. In financial year 2015 the amount
of loans disbursed to clients reached Rs. 6,891 crores. The amount of loans disbursed to clients was Rs.
12,088 during financial year 2016. The amount disbursed boosted up to Rs. 14,667 crores in year 2017.
In 2018 the company disbursed loans of Rs. 18,472 crores.

37
SHARE HOLDING PATTERN OF THE COMPANY

Share Holding Pattern

0.01%
1.58%
3.32%
4.16%
0
Foreign institutions
Banks & Mutual Funds
General Public
24.29%
Others
Financial Institutions

60.18% Foreign Promoters

GDR

Holders name Share Holding Pattern No. of Shares

Foreign institutions 60.18% 84339466
Banks & Mutual Funds 24.29% 34041644
General Public 6..47% 9063145
Others 4.16% 5823592
Financial Institutions 3.32% 4658376
Foreign Promoters 1.58% 2213813
GDR 0.01% 16661

38
2.1 INTRODUCTION

This chapter focuses on Objectives, Scope of study, Limitations of the study, Sample size, Data collection,
Techniques and Tabulation of data.

2.2 OBJECTIVES OF THE STUDY

The basic objective is to learn about what is a micro finance, what is the system framework, what is a micro
finance institution, its principles What are the legal rules & regulations framed by RBI for micro-Finance
institutions, advantages, disadvantages & need for micro finance in India. Through this project we can study
the impact of micro finance in empowering the social economic status of poor people and developing of social
entrepreneurship. And what kind of products & services they offer to poor people.

2.3 LIMITATIONS

1. TIME CONSTRAINT
Shortage of time was a very big constraint due to which some area of micro finance has been included in the
study.

2. RESOURCE CONSTRAINT
Availability of data was a constraint due to which only secondary data is considered, which is available, and
also there are some MFIs whose data was not available

3. SECONDARY DATA
All the information available was from secondary sources and data was very vast to analyse properly &
accurately.

4. WIDE AREA TO STUDY

Study being conducted was very wide & analysis require expertise knowledge & skills which was lacking.

5. NO DIRECT SOURCE OF INFORMATION AVAILABLE

The information is collected from indirect sources so in some information data is not available

6. FUTURE ANALYSIS
The whole study was based on historical data which was not much useful in analysis of present and prediction
of future.

39
2.4 RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the problem. It is a game plan for conducting research.
In this we describe various steps that are taken by the researcher.

Research is an art of scientific and systematic investigation. Thus, research comprises defining and redefining
problems, formulating hypothesis or suggested solutions; collecting, organizing and evaluating data, making
deductions and reaching conclusions. Research methodology is the arrangement of condition for collection
and analysis of data in a manner that aims to combine relevance to the research purpose with economy in
procedure. Research Methodology is the conceptual structure within which research is conducted. It
constitutes the blueprint for the collection measurement and analysis of the data.

Research methodology is a framework for the study and is used as a guide in collecting and analysing the data.
It is a strategy specifying which approach will be used for gathering and analysing the data. it also includes
time and cost budget since most studies are done under these two constraints. The research methodology
includes overall research design, the sampling procedure, the data collection method and analysis procedure.

2.5. TYPES OF RESEARCH USED

DESCRIPTIVE RESEACH

In the study descriptive research design has been used. As descriptive research design is the description of
state of affairs, as it exists at present. In this type of research, the researcher has no control over the variables;
he can only report what has happened or what is happening. Descriptive research designs are those design
which are concerned with describing the characteristics of particular individual or of the group.

2.6. METHOD OF DATA COLLECTION

After the research problem has been identified and selected the next step is to gather the requisite data. While
deciding about the method of data collection to be used for the researcher should keep in mind two types of data
i.e. primary and secondary.

40
1. Primary Data

The primary data are those, which are collected afresh and for the first time, and thus happened to be original
in character. We can obtain primary data either through observation or through direct communication with
respondent in one form or another or through personal interview

2. Secondary Data

The secondary data on the other hand, are those which have already been collected by someone else and which
have already been passed through the statistical processes. When the researcher utilizes secondary data then
he has to look into various sources from where he can obtain them. For e.g. books, magazine, newspaper,
internet, publications and reports.

3. Size of Sample

The sample size selected for the research is 100 in area of Mumbai.

2.7. PARAMETERS OF INTEREST

The major parameter of interest is the group of people working professional in any sector that is banking sector
or people working in any organization having knowledge about micro finance.

2.8. SAMPLING TECHNIQUE

Convenience Sampling

Convenience sampling is a type of non-probability sampling method where the sampling is taken from a group
of people easy to contact or reach. This type of sampling is also called as Grab sampling or Availability
sampling. There are no other criteria to sampling method except that people are available and willing to
participate.

2.9 DATA COLLECTION TOOLS USED

I. Questionnaire
The data collection tool used for the research is Questionnaire to get the primary data for empirical
research on a study about micro finance.

41
Literature Review

Numbers of book, articles and paper are written on micro finance all over the world and few of them are taken
under consideration for our study. The following documents are reviewed for our study.

Mohammed AnisurRahaman (2007)

Has examined that about microfinance and to investigate the impact of microfinance on the poor people of the
society with the main focus on Bangladesh. We mainly concise our thesis through client’s (the poor people, who
borrowed loan from microfinance institutions) perspective and build up our research based on it. Therefore, the
objective of this study is to show how microfinance works, by using group lending methodology for reducing
poverty and how it affects the living standard (income, saving etc.) of the poor people in Bangladesh. Microfinance
has the positive impact on the standard of living of the poor people and on their life style. It has not only helped
the poor people to come over the poverty line, but has also helped them to empower themselves.

SusyCheston (2002)

Has examined that Microfinance has the potential to have a powerful impact on women’s empowerment.
Although microfinance is not always empowering for all women, most women do experience some degree of
empowerment as a result. Empowerment is a complex process of change that is experienced by all individuals
somewhat differently. Women need, want, and profit from credit and other financial services. Strengthening
women’s financial base and economic contribution to their families and communities plays a role in
empowering them. Product design and program planning should take women’s needs and assets into account.
By building an awareness of the potential impacts of their programs, MFIs can design products, services, and
service delivery mechanisms that mitigate negative impacts and enhance positive ones.

Linda Mayoux (Feb 2006)

Has examined that Micro-finance programmes not only give women and men access to savings and credit, but
reach millions of people worldwide bringing them together regularly in organized groups. Through their
contribution to women’s ability to earn an income, micro-finance programmes can potentially initiate a series
of „virtuous spirals‟ of economic empowerment, increased well-being for women and their families and wider
social and political empowerment Banks generally use individual rather than group-based lending and may
not have scope for introducing non-financial services. This means that they cannot be expected to have the
type of the focused empowerment strategies which NGOs have.

42
EoinWrenn (2005)

Has examined that microfinance creates access to productive capital for the poor, which together with
human capital, addressed through education and training, and social capital, achieved through local
organization building, enables people to move out of poverty (1999). By providing material capital to a poor
person, their sense of dignity is strengthened and this can help to empower the person to participate in the
economy and society.
The impact of microfinance on poverty alleviation is a keenly debated issue as we have seen and it is
generally accepted that it is not a silver bullet, it has not lived up in general to its expectation (Hulmeand
Mosley, 1996). However, when implemented and managed carefully, and when services are designed to
meet the needs of clients, microfinance has had positive impacts, not just on clients, but on their families and
on the wider community.

Cheston& Kuhn (2004)

Has examined that in their study concluded that micro-finance programmes have been very successful in
reaching women. This gives micro-finance institutions an extraordinary opportunity to act intentionally to
empower poor women and to minimize the potentially negative impacts some women experiences. We also
found increased respect from and better relationships with extended family and in-laws. While there have
been some reports of increased domestic violence, Hashemi and Schuler found a reduced incidence of
violence among women who were members of credit organizations than among the general population.

Dr. JyotishPrakashBasu (2006)

Has examined that the two basic research questions. First, the paper tries to attempt to study how a woman’s
tendency to invest in safer investment projects can be linked to her desire to raise her bargaining position in
the households. Second, in addition to the project choice, women empowerment is examined with respect to
control of savings, control of income, control over loans, control over purchasing capacity and family
planning in some sample household in Hooghly district of West Bengal.
The empowerment depends on the choice of investment of project. The choice of safe project leads to more
empower of women than the choice of uncertain projects. The Commercial Banks and Regional Rural banks
played a crucial role in the formation of groups in the SHGs -Bank Linkage Program in Andhra Pradesh
whiles the Cooperative Banks in West Bengal.

43
Chintamani Prasad Patnaik (March 2012)
Has examined that microfinance seems to have generated a view that microfinance development could provide
an answer to the problems of rural financial market development. While the development of microfinance is
undoubtedly critical in improving access to finance for the unserved and underserved poor and low-income
households and their enterprises, it is inadequate to address issues of rural financial market development. It is
envisaged that self-help groups will play a vital role in such strategy.

But there is a need for structural orientation of the groups to suit the requirements of new business. Microcredit
movement has to be viewed from a long-term perspective under SHG framework, which underlines the need
for a deliberate policy implication in favour of assurance in terms of technology back-up, product market and
human resource development.

Hunt, J &Kasynathan (2002)

Has examined that poor women and men in the developing world need access to microfinance and donors
should continue to facilitate this. Research suggests that equity and efficiency arguments for targeting credit
to women remain powerful: the whole family is more likely to benefit from credit targeted to women, where
they control income, than when it is targeted to men. Microfinance must also be re-assessed in the light of
evidence that the poorest families and the poorest women are not able to access credit.

A range of microfinance packages is required to meet the needs of the poorest, both women and men. Donors
need to revisit arguments about the sustainability of microfinance programmes. Financial sustainability must
be balanced against the need to ensure that some credit packages are accessible to the poorest.

R.Prabhavathy (2012)
Has examined that collective strategies beyond micro-credit to increase the endowments of the poor/women
enhance their exchange outcomes the family, markets, state and community, and socio-cultural and political
spaces are required for both poverty reduction and women empowerment. Even though there were many
benefits due to micro-finance towards women empowerment and poverty alleviation, there are some concerns.

First, these are dependent on the programmatic and institutional strategies adopted by the intermediaries,
second, there are limits to how far micro-credit interventions can alone reach the ultra-poor, third the extent
of positive results varies across household headship, caste and religion and fourth the regulation of both public
and private infrastructure in the context of LPG to sustain the benefits of social service providers.

44
Reginald Indon (2007)

Has examined that informal businesses represent a very large cross-section of economic enterprises operating
in the country. Informal businesses may be classified as either the livelihood/ survival type or the
entrepreneurial/ growth-oriented type. Livelihood enterprises are those which show very limited potential for
growth in both income and employment generation.

There are existing policies, program and services that directly/ indirectly cover informal. Variety of support
programs, services and information are currently being offered by different institutions. These programs and
support services fail to reach or remain inaccessible to informal business operators and owners. This is borne
out of and perpetuated by lopsided economic policies and poor governance that inadvertently encumber informal
businesses from accessing mainstream resources and services.

Mallory A. Owen (2006)

Has examined that microfinance has signalled a paradigm shift in development ideology. Using my
experiences with microfinance in a fishing village in Senegal, this study will address the claims driving the
microfinance movement, debate its pros and cons and pose further questions about its validity and widespread
implementation. Instead of lifting people out of poverty and empowering women, microfinance may have
regressive long term potential for borrowers.
How loans get used is a central theme of this essay. How microfinance and the notion of the “entrepreneur”
fit into the rural, Senegalese cultural context is also addressed. Microfinance programs should be implemented
with complementary measures that challenge the systematic causes of inequality examined in this article.

The microfinance model (group lending based on joint liability) uses the social capital generated by group
membership to ensure that loans get re-financed. If one woman fails to pay back her loan, she puts her entire
loan group at jeopardy.

As a result, “Women’s participation in microenterprise does not show any signs of creating the new forms of
solidarity among women that the advocates of empowerment desire. Instead, women are placed under
enormous pressure to maintain existing modes of social relationships, on which depends not only the high
rates of loan repayments but also the survival of families.”

45
Jennifer Meehan (2004)
Has examined that it will need to do three things simultaneously. First, it will need to rapidly scale up, in key
markets, like India, home to high numbers of the world’s poor. Second, in this process, clear priority is needed
for philanthropic, quasi-commercial and commercial financing for the business plans of MFIs targeting the
poorest segments of the population, especially women. Third, microfinance will need to realize its possibility

as a broad platform and movement, more than simply an intervention and industry. The pioneering financings
completed by leading, poverty-focused MFIs have shown the industry what is possible – large amounts of
financing that allows for rapid expansion of financial services to new poor customers. The MFIs offer a model
to others that are interested in tapping the financial markets. If leading MFIs continue on their present course
and adopt some or all of the suggestions offered, financial market interest – or more specifically, debt capital
market interest – in leading, poverty-focused MFIs is expected to grow.

Jacob Levitsky and Leny van Oyen (1999)

Has examined that micro-businesses to large corporations, located in large urban centres, in rural areas and in
the formal and informal sectors. Financing needs are therefore of varying nature. In describing experiences, a
link is made between size of enterprises, financing schemes/instruments and typical delivery channels. When
referring to enterprises in this paper, focus is predominantly on businesses, both existing and potential, in the
manufacturing sector and related services. It is clear from this paper that increasing the volume of finance
available and the delivery of such funds in various appropriate forms, to support enterprises in Africa, is a
difficult challenge.

Central banks have to be given more independence, strengthened with qualified, experienced personnel, able
to fulfil adequately the role of supervising and monitoring the performance of commercial banks in the
provision of loans to those enterprises able to make effective use of them. Formal financial institutions such
as commercial banks and, in a few cases, development banks, have to be encouraged and pressed to make
appropriate loans to those who have proved themselves by paying off a number of loans they have received
from NGOs or from formal financial institutions. The minimalist credit approach has clear limitations, and for
credit schemes to be effective and have impact, complementary services are needed.

Marguerite S. Robinson (1995)

Has examined that HIID's role in the formulation of the initial hypotheses and HIID's contributions in planning
and coordinating the underlying research, advising on the policies and implementation strategies that put
concept into practice, analysing the results, and disseminating the findings. Drawing on work in Asia, Africa,
46
and Latin America, the paper analyses the paradigm shift in microfinance from government and donor-funded
subsidized credit to sustainable financial intermediation. This shift has occurred because of the work of many
people in many countries. This paper, however, is limited to HIID's contribution. The policy implications of
the 'new microfinance' for governments, donors, banks, and NGOs are explored. HIID is advising BRI on its
program for international visitors. In addition, HIID is analysing and teaching - in universities, financial
institutions, donor agencies, bank superintendence’s, and NGOs - the principles and the results of the new
microfinance paradigm.

Pillai (1995)

Has examined that the emergence of liberalization and globalization in early 1990's aggravated the problem
of women workers in unorganized sectors from bad to worse as most of the women who were engaged in
various self-employment activities have lost their livelihood. Microfinance is emerging as a powerful
instrument for poverty alleviation in the new economy.

In India, Microfinance scene is dominated by Self Help Group (SHGs)-Bank Linkage Programme as a cost
effective mechanism for providing financial services to the "Unreached Poor" which has been successful not
only in meeting financial needs of the rural poor women but also in strengthening collective self-help
capacities of the poor leading to their empowerment.

Micro finance is necessary to overcome exploitation, create confidence for economic self-reliance of the rural
poor, particularly among rural women who are mostly invisible in the social structure. Micro finance can
contribute to solving the problems of inadequate housing and urban services as an integral part of poverty
alleviation programmes. The challenge lies in finding the level of flexibility in the credit instrument that could
make it match the multiple credit requirements of the low income borrower without imposing unbearably high
cost of monitoring its end use upon the lenders.

Crabb, P. (2008)

Has examined that the relationship between the success of microfinance institutions and the degree of
economic freedom in their host countries. Many microfinance institutions are currently not self-sustaining and
research suggests that the economic environment in which the institution operates is an important factor in the
ability of the institution to reach this goal, furthering its mission of outreach to the poor.

The sustainability of the micro lending institutions is analysed here using a large cross-section of institutions
and countries. The results show that microfinance institutions operate primarily in countries with a relatively
low degree of overall economic freedom and that various economic policy factors are important to
sustainability.
47
Fehr, D. and G. Hishigsuren. (2006)

Has examined that microfinance institutions (MFIs) provide financial services to the poorest households. To
date, funding of MFI activities has come primarily from outright donor grants, government subsidies, and
often debt capital, including debt with non-market terms favourable to the MFI. These traditional sources of
MFI financing may not be sufficient to allow MFIs to provide maximum services.

There is a subset of the pool of mainstream equity investors who would consider investing in MFI
opportunities, even knowing that they would not expect to earn the full economic rate of return that such
investments would otherwise require. However, as part of their investment evaluation process, these investors
would ask: What would the market determine required expected rate of return for my MFI investment be?
What return on investment (ROI) do I expect to earn on my MFI investment? Is the difference in the above
two returns acceptable given my level of social motivation? How will I "monetize" my investment and when?
The purpose of this article is to employ modern corporate finance techniques to address these questions.

Demirguc-Kunt, A. and Martinez, P.M.S. (2005)

Has examined that this paper (i) presents new indicators of banking sector penetration across 99 countries,
based on a survey of bank regulatory authorities, (ii) shows that these indicators predict household and firm
use of banking services, (iii) explores the association between the outreach indicators and measures of
financial, institutional, and infrastructure development across countries, and (iv) relates these banking outreach
indicators to measures of firms „financing constraints.

In particular, we find that greater outreach is correlated with standard measures of financial development, as
well as with economic activity. Controlling for these factors, we find that better communication and transport
infrastructure, and better governance are also associated with greater outreach. Government ownership of
financial institutions translates into lower access, while more concentrated banking systems are associated
with greater outreach. Finally, firms in countries with higher branch and ATM penetration and higher use of
loan services report lower financing obstacles, thus linking banking sector outreach to the alleviation of firms‟
financing constraints.

Srinivasan, Sunderasan (2007)

Has examined that micro banking facilities have helped large numbers of developing country nationals by
supporting the establishment and growth of microenterprises. And yet, the microfinance movement has grown
on the back of passive replication and needs to be revitalised with new product offerings and innovative service

48
delivery. Renewable Energy systems viz., solar home systems, biogas digesters, etc., serve to improve indoor
air quality, provide superior light and extend working and study hours. Such applications are not inherently
income generating and returns on such investments accrue from cost avoidance, but should qualify for micro
funding, as such 'quality of life' investments, reflect borrower maturity and simultaneously contribute to MFI
sustainability.

Basu, P., Srivastava (2005)

Has examined that the current level and pattern of access to finance for India's rural poor and examines some
of the key microfinance approaches in India, taking a close look at the most dominant among these, the Self
Help Group (SHG) Bank Linkage initiative. It empirically analyses the success with which SHG Bank Linkage
has been able to reach the poor, examines the reasons behind this, and the lessons learned. The analysis in the
paper draws heavily on a recent rural access to finance survey of 6,000 households in India, undertaken by the
authors. The main findings and implications of the paper are as follows: India's rural poor currently have very

little access to finance from formal sources. Microfinance approaches have tried to fill the gap. Among these,
the growth of SHG Bank Linkage has been particularly remarkable, but outreach remains modest in terms of
the proportion of poor households served. The paper recommends that, if SHG Bank Linkage is to be scaled-
up to offer mass access to finance for the rural poor, then much more attention will need to be paid towards:
the promotion of high quality SHGs that are sustainable, clear targeting of clients, and ensuring that banks
linked to SHGs price loans at cost-covering levels.

At the same time, the paper argues that, in an economy as vast and varied as India's, there is scope for diverse
microfinance approaches to coexist. Private sector micro financiers need to acquire greater professionalism,
and the government, too, can help by creating a flexible architecture for microfinance innovations, including
through a more enabling policy, legal and regulatory framework. Finally, the paper argues that, while
microfinance can, at minimum, serve as a quick way to deliver finance to the poor, the medium-term strategy
to scale-up access to finance for the poor should be to 'graduate' microfinance clients to formal financial
institutions. The paper offers some suggestions on what it would take to reform these institutions with an eye
to improving access for the poor.

49
Robinson, M. (2001)

Has examined that the timing of this book is excellent it has few close substitutes in terms of its sweeping
overview of the terrain, and the revolution is now so advanced that the time is right for a history, or at least a
retrospective. As with any revolution, however, splits have emerged within the movement. On one side are
those who argue that the way forward is to require microfinance institutions to meet the test of financial
sustainability essentially, requiring these institutions to cover their costs, even if this means that the very
poorest of the poor remain under-served. Against this, the poverty lending approach emphasizes the
importance of outreach, especially to the very poorest borrowers, as a poverty fighting approach.

Muhammad Yunus (1998)

Has examined that this approach to poverty reduction at the macro-level is inadequate. The primary causes of
poverty are not lack of human capital or lack of demand for labour. Lack of demand for labour is only a
symptom, not a cause, of poverty. Poverty is caused by our inadequate understanding of human capabilities
and by our failure to create enabling theoretical frameworks, concepts, institutions and policies to support
those capabilities.

My main argument is that economics as we know it is not only unhelpful in getting the poor out of poverty; it
may even be a hindrance. In this paper, I would like to explore those institutions that perpetuate poverty, share
my experiences with an effective poverty alleviation institution, and present my thoughts on the future of
poverty alleviation. Before addressing these points, however, I would like to provide a useful framework to
define the concept of "the poor" more concretely.

Ashta, A. & De Selva, R. (2009)

Hass examined that the relationship between microfinance and religion, and provides future research directions
in this area. Religious institutions often play a crucial role in establishing microfinance systems, but
interactions between microfinance and religion have received little attention of researchers. Some of the topics
addressed by articles reviewed in this paper include the impact of the Great Irish Famine on Irish loan funds,
indigenization within support groups for chronically ill Haitian women, impact of religion on borrowing
patterns of Jordanian micro-entrepreneurs, Islamic microfinance in Pakistan and Indonesia, spirituality as an
asset in a Christian initiative role of religious leaders in identifying entrepreneurial talent, microfinance and
charity in Thailand and the Philippines, and extensive socio-economic studies in Bangladesh and India.

50
Ernest Aryeetey (2005)

Has examined that informal finance and microfinance suitable for financing growing small to medium size
enterprises (SMEs) in Sub-Saharan Africa? First, I present the characteristics of informal finance, focusing on
size, structure, and scope of activities. Informal finance has not been very attractive for the private sector.
Indeed, the informal sector has considerable experience and knowledge about dealing with small borrowers,
but there are significant limitations to what it can lend to growing microbusinesses.
Second, I discuss some recent trends in microfinance. While externally driven microfinance projects have
surfaced in Africa, their performance relative to small business finance has not been as positive as in Asia and
Latin America. Third, I introduce some possible steps toward a new reform agenda that will make informal
and microfinance relevant to private sector development, including focusing on links among formal, semi-
formal and informal finance and how these links can be developed.

Yunus (2003)

Has examined that count 130 McMaster School for Advancing Humanity on women to spread the word to
their neighbours and friends about the success of these loans. The testimony is expected to convince others to
seek out Grameen for help. Yunus also encourages members to save some of their money in case they fall on
hard times, such as natural disasters, or to use this money for other opportunities. In 1977, Yunus founded
Grameen Bank after working for six months to get a loan from the Janata Bank. Yunus realized that having
groups of people take out a loan was a better plan for success than giving loans to individuals. He describes
the process by which Grameen Bank lends money. Loan repayments are to be made in very small amounts,
and in the first project, Yunus chose a villager to be in charge of collecting the repayments.

Monique Cohen (2002)

Has examined that the ideas presented in this paper are designed to direct the arena of discourse towards a
more holistic market driven or client focused microfinance agenda. Currently, the debate on market-driven
microfinance is primarily framed by the „problems‟ of competition and dropouts among established MFIs.
The solutions to the problems are defined in terms of more responsive products, the creation of new products,
and the restructuring of existing ones. Appropriate products will not only benefit the operations of an
institution they will also have a positive impact on the wellbeing of the client, reducing the risk of borrowing
and the poor’s vulnerability. In presenting current thinking on a client-led agenda, this paper finds itself in a
precarious position in the midst of this debate. Client-led models are still in their infancy, and the fact that this
topic is the theme of this special edition of the Journal of Development Studies is itself an important milestone.
When this author began to focus on clients in microfinance six years ago, the notion that clients deserved a
voice in the design and delivery of services was dismissed out of hand.
51
NidhiyaMenon (2006)
Has examined that this paper studies the benefits of participation in micro-finance programs, where benefits
are measured in terms of the ability to smooth the effect of seasonal shocks that cause consumption
fluctuations. It is shown that although membership in these programs is an effective instrument in combating
inter-seasonal consumption differences, there is a threshold level of length of participation beyond which
benefits begin to diminish.

Returns from membership are modelled using a Euler equation approach. Fixed effects non-linear least
squares estimation of parameters using data from 24 villages of the Grameen Bank suggests that returns to
participation, as measured by the ability to smooth seasonal shocks, begin to decline after approximately two
years of membership. This implies that membership alone no longer has a mitigating marginal effect on
seasonal shocks to per capita consumption after four years of participation. Such patterns suggest that the
ability to smooth consumption as a function of length of membership, need not accrue indefinitely in a linear
fashion.; Reprinted by permission of Frank Cass & Co. Ltd.

John A. Brett. (2006)

Has examined that having borrowed money from a microfinance organization to start a small business, many
women in El Alto, Bolivia are unable to generate sufficient income to repay their loans and so must draw upon
household resources. Working from the women's experience and words, this article explores the range of factors
that condition and constrain their success as entrepreneurs. The central theme is that while providing the poor
access to credit is currently very popular in development circles, the social and structural context within which
some women operate so strongly constrains their productive activity that they realize a net income loss at the
household level instead of the promised benefits of entrepreneurship. This paper explores the social and structural

realities in which women seek out and accept debt beyond their capacity to repay from the proceeds of their business
enterprise. By examining some of the "hidden costs" of microfinance participation, this paper argues for a shift
from evaluation on outcomes at the institutional level to outcomes at the household level to identify the forces and
factors that condition women's success as micro-entrepreneurs. While there has been much discussion on the
benefits of microcredit lending and increasing critique of it on both ideological and substantive grounds, there have
been few ethnographically informed studies on consequences to users.

52
Gallardo, Joselito (1999)

Has examined that the Bank should maximize opportunities to expand the use of leasing as an approach to
financial intermediation in Bank projects to promote the development of small businesses and
microenterprises. In most developing countries, capital markets are relatively undeveloped and banks are often
unable or unwilling to undertake term lending. Operations in microenterprises and small businesses are cash-
flow-oriented but rarely have organized historical financial records or the assets needed for collateral for
conventional bank financing.

Gallardo explores the potential of leasing as an option to expand small businesses' access to medium-term
financing for capital equipment and new technology. In a lease-financing contract, the lessor-financier retains
ownership of the asset, lease payments can be tailored to fit the cash-flow generation patterns of the lessee-
borrower's business, and the security deposit is smaller than the equity stake

required in conventional bank financing. Other small businesses require medium-term financing to acquire the
tools and equipment needed to support production growth and expansion. Gallardo examines and compares
the Bank's experience: Lease financing was used to promote the development of small businesses in Pakistan,
as part of a microenterprise development loan project. For a Bank-supported alternative-energy project in
Indonesia, a variant of lease financing-the hire-purchase contract-is being used in marketing and distribution
by private distributors of photovoltaic solar home systems.

Lease financing was used by Grameen Trust in Bangladesh to finance the purchase of small tools and
equipment and in other countries to promote the growth of alternative energy systems. This paper-a product
of the Development Research Group-is part of a larger effort in the group to identify appropriate policies for
environmental regulation in developing countries. The study was funded by the Bank's Research Support
Budget under the research project "The Economics of Industrial Pollution Control in Developing Countries"

Shannon Doocy, Dan Norell, ShimelesTeffera, and Gilbert Burnham (2005)

Has examined that Management decision making in MFIs is becoming increasingly tied to collecting
information about social performance. This paper examines the impact of participation in an Ethiopian
microfinance program on indicators of socioeconomic status including wealth, income, and home or land
ownership. A survey assessing these outcomes was conducted in May 2003 in two predominantly rural sites
in Southern Ethiopia and included 819 households.

53
The article discusses management decisions made as the result of survey findings about socioeconomic status
and food security to increase retention rates and to facilitate client savings. Additionally, the management was
prompted to increase the number of female clients and raise the proportion of female loan officers.

This paper illustrates how data from routine monitoring and evaluation can be linked to MFI management
decision making, which ultimately results in providing better microfinance services. Household asset data
indicates that participation in the WISDOM microfinance program did not result in increased household
wealth. Significant differences in household income were not observed between participant groups in either
survey site and client status was not a significant predictor of income in univariate or multivariate regression
models.

Malcolm Harper (2002)

In his paper titled ‘Grameen bank groups and self-help groups; what are the differences?’ showed the
advantages and disadvantages of both the system. The paper described and explained each system and
compared their sustainability, their outreach and impact on the poor and their institutional feasibility. The
paper concluded by summarizing the pros and cons of both the system in a table. The summary table includes
the pluses and minuses for both clients and banks and also the suitable conditions for both the system to operate
smoothly.

Bindu Ananth (2005)

In her paper titled ‘Financing microfinance – ICICI Bank partnership model’ analysed the partnership model
of financing microfinance institutions. The paper compared three financing models for microfinance. The three
models were Self-help group bank linkage model, financial intermediation by microfinance institutions and
the partnership model – MFI as a servicer. The paper described in detail the need for partnership model and
the description of how the model worked.

The researcher said that the model was unique in that it combines both debt as well as mezzanine finance to
the MFI in a manner that rapidly lead to the increase in outreach, while it unlocked large amounts of wholesale
funds available in the commercial banking sector in India. The paper also discussed how to build links to
capital markets for financing microfinance through securitization. It concluded by highlighting key enablers
for an environment of rapid microfinance growth including regulator support for hybrid models of outreach
and investments in training and funding of initial expenses of new or emerging MFIs.

54
Bhole B. and Ogden S (2010)

In their paper titled ‘Group lending and individual lending with strategic default’ had compared the presence
of strategic default between group lending and individual lending. Secondary data was considered for the
purpose of the study. The study found out results by developing its own strategic model. The paper concluded
that unless group members could impose sufficiently strong social sanctions on their strategically default
partners, or unless the bank used cross reporting mechanism, group lending can perform worse than individual
lending. It was showed that when certain restrictions on group lending contract were relaxed then group
lending yielded higher welfare than individual lending even in the absence of any social sanctions or cross
reporting.

Brijesh Rupapara and Jitendra Patoliya (2012)

Have written book titled ‘Problems faced by Microfinance Institutions and measures to solve it’. The book
have been divided into seven chapters namely basics of microfinance, self-help group, microfinance
institutions performance, urban and rural microfinance, micro insurance, technology and microfinance and
lastly business models for microfinance. The book described in dept the history and meaning of microfinance
and various terms related to microfinance. Further the objective of the research conducted was to study the
current activities, limitations and scope of microfinance institutions in India and lastly to develop a business
model for MFIs. Based on the findings of the research, the authors suggested that rural economy must focus
on rural infrastructure and economy so that it ensured there existed the activities that were required for
financial assistance.

Sa-Dhan (2012)

Published a report titled ‘Financial Inclusion – A study of the efficacy of banking correspondent model’ with
an objective to study different models of BCs, identify its challenges and evaluate different products and
services offered by BCs. The study included various legal forms of BCs like SHG Federations, Societies,
Trusts, Not-for-profit companies and special purpose vehicles promoted by technology provided companies
and all other important stakeholders including the regulators – the banks, technology providers, clients, non-
clients, training institutions and the other promotional agencies.

A financial modelling was done to understand the break-even points under different situation. Few of the
study findings were that the major challenge faced was its commercial viability. Financial literacy programme
which was a key success factor was almost missing. Most of the clients had little knowledge of the range of
services the BCs offer and there was no proper dedicated customer grievance mechanism or channel for

55
customers of BC in many banks. The study broadly recommended three strategies that were strategies for
improving viability, strategy for enhancing commercial interest of banks and client centric strategies.

Hema Bansal (2003)

In her paper titled ‘SHG-bank linkage programme in India’ reviewed the performance of the program in
different states of India and across three major institutions – commercial banks, co-operatives and the regional
rural banks. The study presented vital information about the leading NGOs with major credit linkages in Indian
State. The analytical section of the paper was divided in five parts. The first section reviewed the spread of
self-help group linkages to banks across three different models that have been adopted by the national bank to
route credit to SHGs. The second section assessed the coverage of SHG linkages for three years from 1997-
98 to 1999-2000. The third section studied the distribution of SHGs across states and union territories of India.
In order to understand the relationship between poverty, human development and spread of NGOs in India
states, the research used correlations.

The fourth section studied the state-by- state participation of commercial banks, regional rural banks and co-
operatives and provided brief backdrop of these institutions. The fifth section identified the non-government
organization/ self-help promoting institutions with maximum SHG credit linkages and presented some
preliminary information about these organizations. The study was based on secondary data published by the
NABARD in India. The researcher concluded the paper by analysing the performance under each five sections
and also mentioned the future scope of all the institutions and the program.

M.S. Sriram and R. Upadhyay (2004)

In their paper titled ‘Transformation of the Microfinance Sector in India’ discussed the growth and
transformation of microfinance organizations (MFO) in India. The paper described the meaning of
microfinance and microfinance in India. It then described the issued that trigger transformation and that were
size, diversity, sustainability, focus and taxation. The paper than explained the international transformation
experiences of countries like Bolivia, Bangladesh and Indonesia followed by transformation in India. The
paper concluded that there was no ideal path for spin-off. Regulatory changes were needed to allow MFOs to
graduate to other legal forms as they grow organically. NGOs must be permitted to invest in the equity of
MFOs, as was the case in Bolivia and Africa. Norms for setting up MFOs under current legal forms should
not be eased. Regulations should ensure that they help genuine MFOs and not others masquerading as MFOs.

56
World Bank document (2004)

Published the report titled ‘Scaling-up access to finance India’s Rural prepared by finance and private sector
development unit of South Asian region. The report was divided into five sections. The first section was of
introduction, second section was access to rural finance in India – the evidence, the third section was what
constrains access to finance for India’s rural poor, fourth section was on recent efforts in India to improve
rural access to finance: the role of formal – informal linkages and new products and fifth section was on
meeting the challenge of scaling-up access to finance India’s rural poor – the policy agenda. The report
mentioned the agenda to make the formal financial sector better at banking the rural poor and also mentioned
the role of government policy.

57
INTRODUCTION
For this research primary data has been collected from the respondent through a questionnaire which had 100
respondents.

The following questions were included in the questionnaire and data analysis and interpretation was done
thereafter.

1) Gender

Male 65
Female 35

Gender

35%
Male

Female
65%

Data Analysis & Interpretation

 The following data show details about the gender of respondents.
 Out of 100 respondents 65 were males and 35 were female respondents.

58
2) Age
Age group
18 - 25 45
26 - 35 25
36 - 45 18
46 or above 12

50
45
45

40

35
No. of Respondents

30
25
25

20 18

15 12
10

0
18 - 25 26 - 35 36 - 45 46 or above
Age Group

Data Analysis & Interpretation

 Majority of respondents were from age group 18 – 25 years which is 45%.

 25% were from age group 26-35 years.
 18% respondents were from age group 36 – 45 years.
 Only 12% respondents were more than 45 years.

59
3) Are you aware about the term “Microfinance”?

Options No. of Respondents

Yes 75

No 25

Awareness about Microfinance

25

Yes

No
75

Data Analysis & Interpretation

 The following data gives details about how many respondents are familiar with term
microfinance.
 Out of 100 respondents 75% are aware about the term micro finance while 25% are not aware
about it.

60
4) How did you get the information about microfinance?

Sources Respondents
Newspaper 40

Television 26
Internet 20

Others 14

Sources of Information

14

Newspaper
40
20 Television

Internet

Others

26

Data Analysis & Interpretation

 40 respondents got the information about microfinance through newspapers.

 26 people got the information by watching television.
 20 respondents got information through internet.
 14 respondents got the information through another sources.

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5) Are you aware about various services of microfinance?

Options No. of Respondents

72
No 28

Respondent's View
80

70
72
NO. OF RESPONDENTS

60

50

40

30
28
20

10

0
Yes No

Data Analysis & Interpretation

 This data gives details about people who are aware about various services of
microfinance institutions.
 Out of 100 respondents 72 respondents are aware about various services and 28
respondents are not aware.

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6) Do microfinance institutions help in women empowerment?

Options No. of
Respondents

Yes 65

No 35

Respondent's View

35%
Yes No

65%

Data Analysis & Interpretation

 This data gives details about will micro insurance will help in women empowerment or
not.
 Out of 100 respondents 85 respondents said YES it will help in future.
 15 respondents said NO it will not help in future.

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7) Do you think Microfinance Institutions can reduce poverty?

Options No. of Respondents

Yes 74
No 26

Respondent's View
80 74

70

60
No. of Respondents

50
Yes
40
No
30 26

20

10

Data Analysis & Interpretation

 This data gives details about microfinance institutions helping to reduce poverty.
 Out of 100 respondents 74 said YES it will help to reduce poverty.
 26 respondents said NO it will not help to reduce poverty.

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8) What are the factors affecting microfinance institutions?

Factors Percentage

Interest Rates 14%

Illiteracy 30%

Over dependence on banks 18%

Regulatory issues 38%

Respondent's View

14%
Interest rates
38% Illiteracy
Over dependence on banks
30%
Regulatory issues

18%

Data Analysis & Interpretation

 This data gives details about factors affecting microfinance institutions.

 Out of 100 respondents majority said for regulatory issues which is 38%.
 Second factor affecting is illiteracy that is 30%.
 Third factor affecting is over dependence on banks which is 18%.
 Fourth factor is interest rates which is 14%.

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9) Do you think Microfinance institutions will help poor people in future?

Options Percentage
Yes 42%
No 22%
May be 36%

Respondent's View
45% 42%
40% 36%
35%
30%
Percentage

25% 22%
20%
15%
10%
5%
0%
1
Yes No May be

Data Analysis & Interpretation

 This data gives details about micro finance institutions helping poor people in future.
 42% among respondents said YES it will help in future.
 22% said NO it will not help in future.
 36% are not able to predict that microfinance institutions can help or not.

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10) Has there been a change in the attitude of the poor people due to training programs?

Options Percentage
Yes 40%
No 28%
May be 32%

Respondent's View
45%
40%
40%

35% 32%
30% 28%
Percentage

25%

20%

15%

10%

5%

0%

Yes No May be

Data Analysis & Interpretation

 This data gives details about the change in the attitude of poor people due to training
programs.
 40% among the respondents said YES that training programs will help to change the attitude
of poor people.
 28% said NO that training programs will not help.
 32% are not able to predict whether training programs will help or not.

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11) Do you think this type of effort should be taken on a larger scale?

Options Percentage

Yes 45%
No 28%
May be 27%

Respondent's View

27%
Yes
45%
No
May be

28%

Data Analysis & Interpretation

 This data gives details about the effort taken by microfinance institutions should be taken
at larger scale or not.
 45% of respondents said YES that this kind of effort should be taken on a larger scale.
 28% said NO that this kind of effort should not be taken at larger scale.
 27% are not able to predict that it should be taken at larger scale or not.

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12) Why according to you is microfinance important?
( some of the responses from respondents)

 It helps people living in poverty to become financially independent, which helps them become more
resilient and better able to provide for their families in times of economic difficulty.

 Micro-finance targets rural areas as majority of population which is poor in India lives in rural areas.

 Microfinance helps to extend education of poor children.

 It creates opportunities for self-employment for the underprivileged.

 It helps to train rural poor in simple skills and enable them to utilize the available resources and
contribute to employment and income generation in rural areas.

 Microfinance helps to serves to those who are overlooked in society.

 It helps to create job opportunities for poor people.

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CONCLUSION
BFIL Microfinance Limited (BFIL) is the country’s leading listed microfinance player in India providing
credit to over 6.4 million poor people through its network of branches spread across several states. Its core
business is to provide small-ticket loans, primarily to women borrowers who are generally outside the financial
system, under the joint liability group. It also provides other basic financial services to its target segment.

BFIL is primarily engaged in providing microfinance to low‐income individuals in India. BFIL Microfinance’s
core business is providing small value loans and certain other basic financial services to its ‘members’
(customers), who are predominantly located in rural areas in India. These members use BFIL’ loans mainly
for small businesses or for other income‐generating activities; they are not usually used for personal
consumption. These individuals often have no access (or very limited access) to loans from institutional
sources of financing. In its core business, BFIL uses a village‐centered, group‐lending model to provide
unsecured loans to its members.

Under its joint‐liability group‐lending model, BFIL lends solely to women borrowers (similar to the Grameen
Bank model) — in this model, women guarantee each other’s loans. There are three reasons why BFIL lends
only to women:

1) Women tend to use resources more productively than men

2) They are more likely to invest most of their income back into the household

3) They are more likely to avoid risky ventures and instead use loans to undertake small, manageable activities.

BFIL’s approach is to provide financial services at the doorstep of members in villages and urban colonies.
This allows its customers convenience and savings in terms of cost and time associated with travelling to
mainstream banks. It also enables BFIL staff to promptly and fully collect repayments. BFIL’ loans are
designed for convenience with small weekly repayments corresponding to cash flows. Small first loans
inculcate credit discipline and collective responsibility.

BFIL uses a five‐member Joint‐Liability Group (JLG) ‐ lending methodology based on the Grameen Bank
model, where each member of the group serves as the ultimate guarantor for each of its members. Further,
multiple groups (4 to 10) of members in a single village are combined together as a Sangam (Centre). The
Sangam is responsible for the repayment of all groups, creating a dual joint‐liability system, where the Sangam
pays in case any of the group defaults on payment. The Centre meets every week,

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Opportunities

Huge opportunities for micro-lending in India

Scalable business model

High entry barriers, strong brand and experienced team

Changes in regulations and conversion into small bank positive

Better processes and restructuring exercises to keep NPAs low and improve cost efficiencies

Improvement in profitability post AP MFI crisis

Cross Selling to improve revenues and margins

Risks

Microfinance (being a sensitive subject) will always be subjected to political risk.

Events such as natural calamities can hurt asset quality, with high write-offs.

Regulatory risk, i.e., if RBI announces measures that negatively affect growth or profitability.

High attrition in the field officer segment, which may impact business growth and reduce productivity.

Around 84% funds are sourced from banks (including 23% from securitization). Any disruption in flow of
funds could impact the business growth.

High lending interest rates

From above points we can conclude that BFIL micro finance is an expanding company in the sector of micro
finance & if the company follows recommendations by experts the company can gain achieve growth &
increase its user client base thus making it one of the leading companies in the sector of micro finance in India.

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RECOMMENDATIONS

Bharat Financial Inclusion Ltd. is one of the most reputed & expanding company in the field of micro fiancé
below are the recommendations for BFIL:

1. Proper Regulation
The regulation was not a major concern when the microfinance was in its nascent stage and individual
institutions were free to bring in innovative operational models. However, as the sector completes almost two
decades of age with a high growth trajectory, an enabling regulatory environment that protects interest of
stakeholders as well as promotes growth, is needed.

2. Field Supervision:
In addition to proper regulation of the microfinance sector, field visits can be adopted as a medium for
monitoring the conditions on ground and initiating corrective action if needed. This will keep a check on the
performance of ground staff of various MFIs and their recovery practices. This will also encourage MFIs to
abide by proper code of conduct and work more efficiently. However, the problem of feasibility and cost
involved in physical monitoring of this vast sector remains an issue in this regard.

3. Encourage rural penetration

It has been seen that in lieu of reducing the initial cost, MFIs are opening their branches in places which
already have a few MFIs operating. Encouraging MFIs for opening new branches in areas of low microfinance
penetration by providing financial assistance will increase the outreach of the microfinance in the state and
check multiple lending. This will also increase rural penetration of microfinance in the state.

4. Complete Range of Products

MFIs should provide complete range of products including credit, savings, remittance, financial advice and
also non-financial services like training and support. As MFIs are acting as a substitute to banks in areas where
people don’t have access to banks, providing a complete range of products will enable the poor to avail all
services.

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5. Transparency of Interest rates
As it has been observed that, MFIs are employing different patterns of charging interest rates and a few are
also charging additional charges and interest free deposits (a part of the loan amount is kept as deposit on
which no interest is paid). All this make the pricing very confusing and hence the borrower feels incompetent
in terms of bargaining power. So, a common practice for charging interest should be followed by all MFIs so
that it makes the sector more competitive and the beneficiary gets the freedom to compare different financial
products before buying.

6. Technology to reduce Operating Cost

MFIs should use new technologies and IT tools & applications to reduce their operating costs. Though most
NBFCs are adopting such cost cutting measures, which is clearly evident from the low cost per unit money
lent (9%-10%) of such institutions.

NGOs and Section 25 companies are having a very high value of cost per unit money lent i.e. 15-35 percent
and hence such institutions should be encouraged to adopt cost-cutting measures to reduce their operating
costs. Also, initiatives like development of common MIS and other software for all MFIs can be taken to make
the operation more transparent and efficient.

7. Alternative sources of Fund

In absence of adequate funds, the growth and the reach of MFIs become restricted and to overcome this
problem MFIs should look for other sources for funding their loan portfolio. Some of the ways through which
MFIs can raise their fund are by getting converted to for-profit company i.e. NBFC: Without investment by
outside investors, MFIs are limited to what they can borrow to a multiple of total profits and equity investment.
To increase their borrowings further, MFIs need to raise their Equity through outside investors.

The first and the most crucial step to receive equity investment are getting converted to for-profit NBFC.
Along with the change in status the MFI should also develop strong board, a quality management information
system (MIS) and obtain a credit rating to attract potential investors.

73
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