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c ³A STUDY ON
SUSTAINABLITY OF SMALL
c MICROFINANACE
c INSTITUTIONS´c
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A PROJECT REPORT
ON

³SUSTAINABLITY OF SMALL
MICROFINANACE INSTITUTIONS´
By

ANKIT PATEL
(MOOO18)

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Microfinance has received increasing attention in many discussions about the
never ending problems of poverty and economic growth promotion. The role of
microfinance institutions (MFI) assumed increased importance after the financial
crisis in the USA. Microfinance has demonstrated that poor people are viable
customers as long as their financing is approached in a right was such that moral
hazard, adverse selection and other agency problems are mitigated. Microfinance
development led to a number of strong institutions focusing on poor people¶s
finance and it begun to attract the interest of private investors. But despite these
achievements, there is still a long way to go to extend access to all who need
financial services.

Following this point of view, we first describe the position of MFI, products and
services in modern microfinance and their position in developing countries. After
this exposition we concentrate on role and performance of MFIs worldwide in the
light of financial and economic crisis in recent years. Robinson defines
Microfinance as small-scale financial services for both credits and deposits that are
provided to people who farm or fish or herd; operate small or micro enterprises
where goods are produced, recycled, repaired or traded; provide services; work for
wages or commissions; gain income from renting out small amounts of land,
vehicles, draft animals, or machinery and tools; and to other individuals and local
groups in developing countries, in both rural and urban areas. Subsidized credit has
long been believed to be the panacea for the eradication of poverty for decades
now. But perhaps the only thing subsidized credit could create was Non
Performing Assets (NPAs). The realization that the core issue for the poor was
access to credit rather than the cost of credit came very late. Microfinance is often
credited with putting an end to the interest rate debate for the poor. A host of
players have entered microfinance space, each having a reason of its own. It is
believed that, Microfinance, unlike other developmental efforts, gives quick and
tangible results. Many NGOs that were early entrants gradually metamorphosed
into full fledged lenders, developmental professionals left their cushy careers to set
up microfinance firms. Even many banks have experimented with working
exclusively with self help groups and therefore have .microfinance branches.


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· AT IS MICROFINANCE?
As the name suggests, microfinance is the field of offering financial services to
people on a small (micro) scale, such as businesses with low or moderate incomes,
but you can read more meticulous definitions here and here. According to Forbes,
microfinance is probably the best known means of helping small business owners
in developing countries move out of poverty.The definition for according to The
Asian Development Bank (ADB) is any financial service targeted toward the poor,
such as:
dc Deposits
dc Finance schemes or micro loans up to $3,000
dc Payment services
dc Money transfers
dc Insurance to poor and low-income households and their micro-enterprises

Microfinance Institutions (MFIs) provide micro services through a variety of

lending models, while micro entrepreneurs use these services. The theory is that if
the poor have access to these services, their financial lives will be more stable,
predictable and secure, allowing them to plan and improve their livelihoods
through education, healthcare and empowerment.
In other words, microfinance converts poverty into an economic opportunity that
evades the idea of exploitation.

· AT ARE T E SOURCES OF MICROFINANCE?

dc Microfinance providers come in various forms which can be broadly

grouped as follows:
dc Formal Microfinance Institutions ± rural/microfinance/village banks,
commercial banks, telecom firms, and cooperatives (see examples)


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MICROFINANCE INSTITUTIONS (MFIs)

Most MFIs started as not-for-profit organizations like NGOs (non-governmental

organizations), credit unions and other financial cooperatives, and state-owned
development and postal savings banks. An increasing number of MFIs are now
organized as for-profit entities, often because it is a requirement to obtaining a
license from banking authorities to offer savings services. For-profit MFIs may be
organized as non-bank financial institutions (NBFIs), commercial banks that
specialize in microfinance, or microfinance departments of full-service banks.

Some MFIs provide non-financial products, such as business development or

health services. Commercial and government-owned banks that offer microfinance
services are frequently referred to as MFIs, even though only a portion of their
assets may be committed to financial services to the poor.

CREDIT DELIVERY MET ODOLOGIES USED BY

MICROFINANCE INSTITUTIONS
MFI¶s use two basic methods in delivering financial services to their clients.

These are:

(1) Group Method

(2) Individual method

GROUP MET OD
This is one of the most common methodologies for providing micro-finance.
Group method primarily involves a group of individuals, which becomes the basic
unit of operation for the MFIs. As we have discussed earlier, MFIs have to provide
collateral free loans, group methodologies help in creating social collateral (peer
pressure) that can effectively substitute physical collateral. Group becomes a basic
unit with which MFIs deal. The advantage of group methodology is that

‡ Groups are trained to own joint responsibility for loans that are taken by
individuals in the group.
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‡ Groups ensure repayments from all individuals in that group and incase of a
default

‡ Groups functions as the forum where the credit discipline and other related issues
are discussed.

‡ Group may have to jointly own the responsibility of defaults and pay on behalf of
defaulting client.

‡ Group also help credit appraisal and provide opinion on creditworthiness of each
individual in the group.

‡ Groups methodology also helps in controlling cost

This ensures that even without taking any physical collateral, the MFI is able to
manage its credit risk (loan related risk).

MFIs actually deliver the financial service at the client¶s location which could be a
village in rural areas or a colony/slum in urban area. Having a group helps the
MFIs in getting all clients at one spot rather than visiting each individual¶s house.
This helps the MFI in increasing the efficiency of staff and controlling the cost.
Group methodology creates a forum where individuals come and discuss, can
provide opinion, and exert social pressure.

The advantage of Group methodology can easily be appreciated by the fact if the a
MFI employee has to visit each individual house in isolation, it would be very
difficult. Also in the absence of a group, if a client refuses to pay there is no forum
where such a case can be discussed or there is no method through which the MFI
can expert pressure on the client.

Group methodology is also important because in case of larger loan defaults a

financial institutions can take recourse o legal action but in small loans legal
recourse is not an economically sound option. An MFI who may have an
outstanding or Rs 3,000 at default cannot apply legal pressure as the cost of
recovery through that method can be higher than the amount to be recovered itself.

Moreover, the clients that the MFIs are dealing with are generally poor and may
face genuine problems at times. Rather than taking an aggressive/legal approach,
which such vulnerable clients it is always better to have more constructive and
collective approach, which is provided by the Groups.

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Due to the various advantages, as indicated above provided by groups, this
methodology is widely accepted and used in micro-finance across the world.

Self-help Group and Joint Liability Groups (Grameen model and its variants) are
two common credit delivery models in India.

SELF ± ELP GROUPS (S GS)

Self-help Group concept has its origin in India. SHGs are now considered to be
very important bodies in rural development and are therefore found in almost all
parts of the country and their number is still rapidly growing. SHGs are formed by
Non-Government Organisations as well as Government agencies and are used as
channels for various development programmes.

A Self-Help Group is an association of generally up to 20 members (not exceeding

20 members), preferably from the same socio-economic background. SHGs are
facilitated by Government agencies or NGOs for members to come together for
discussing and solving their common problems either financial or social through
mutual help. An SHG can be all-women group, all-men group, or even a mixed
Group. However, it has been the experience that women¶s groups perform better in
all the important activities of SHGs. Mixed group is not preferred in many of the
places, due to the presence of conflicting interests.

Some of the distinct features of S Gs are

(i) Recognized by government: SHGs are well recognized and accepted by
government, SHGs can open bank accounts in the name of SHG. They can also
receive government grants and funds for development activities.

(ii) SHGs are social intermediaries: SHGs do not restrict their functions only to
financial transactions. SHGs are often involved in many social activities. There are
example where SHGs have taken up social issues and fought against social evils
like alcoholism, violence, against women, dowry, getting into village politics and
being elected as Sarpanch.

(iii) Books of accounts: SHGs maintain their own books of accounts. These are
simple books to keep records of their savings, loans income and expenditures.
Strong SHGs also make their Balance sheets and Income statements.

(iv) Have office bearers: SHGs gave a structure where there is a Group President,
Secretary and Treasure. They are elected by the group.
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(v) SHGs are more autonomous as they decide their own rules and regulations.

(vi) SHGs mobilize thrift and rotate it internally.

(vii) SHGs can hold bank account and can also borrow from banks and other
financial institutions.

We see that SHGs are groups, which are more autonomous. While they are
involved in financial transactions, their role is not just restricted to it. SHGs are
also involved in various social issues.

As more SHGs are formed they have started federating themselves into clusters
and clusters in turn as SHG Federations. The Federations are able to channelise
funds to the SHGs and also help in improving the managing and financial skills of
SHGs.

JOINT LIABILITY GROUP ± GRAMEEN MODEL

Grameen model is based on the concept of joint liability. It is the brainchild of

Prof.. Muhammad Yunus, founder of Grameen Bank in Bangladesh. Grameen
model is the most accepted and prevalent micro-finance delivery model in the
world today. Many MFIs have accepted the model as it has high focus on
standardization and discipline

Grameen model, as mentioned, is a joint liability group model. Here five-member

groups are formed and eight such groups form a Center. Hence, in a full-capacity
Center there are 40 members (8 x 5). However, over the years people have
experimented with Centers of different sizes and now there are variations of 5-8
groups within a Center. Center is the operational unit for the MFI, which means
that MFI deals with a Center as a whole.

Meetings also take place only at the Central level and individual groups do not
meet. Group meetings take place only in front of the Field staff of the MFI. A
Grameen model is focused on financial transactions and other social issues are
generally not discussed. The Group and Center are Joint liability Groups, which
means that all members are jointly responsible (µliable¶) for the repayment. MFI
recovers full money from Center, if any member has defaulted: the group members
have to pool in money to repay to the MFI. If Group members are unable to do it,
Center as whole has to contribute and share the responsibility.

Some other features of Grammen Model are:

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(i) The group meeting take place every week

(ii) Interest rate are charged on flat basis

(iii) MFI staff conducts the meeting

(iv) All transactions take place only in Center meetings

Grameen model is focused on providing financial services to the clients and hence
there is an emphasis on standardization and discipline. The model suggests weekly
meeting for frequent interaction with the clients to reduce credit risk. The meetings
are conducted for carrying out the financial transactions only. The meetings are
conducted systematically in a short-time and other social issues are not discussed.
Flat interest is charged again for making the system standardized. In flat rate
system installment size of repayment remains small for all weeks and hence is
convenient and easier to explain. Also, it is easy to break the loan installment into
the principal and interest component.

We see that the SHG and Grameen model have originated with two different
approaches. SHG model has been developed with holistic view of development
and empowerment of society where financial transactions are only one part of it.
While Grameen model is specifically focused on providing financial services to the
low-income clients.

JOINT LIABILITY GROUPS (JLG)

Grameen model is a particular form of joint liability Group but in India there are
other forms of Joint liability Groups as well. MFIs, particularly in urban areas,
form JLGs of five-members. These are group of individuals coming together to
borrow from the financial institution. They share responsibility (³liability´) and
stand as guarantee for each other. There is a Group Leader in such JLGs, many
MFIs prefer such group in urban business areas. Such JLGs do not hold periodic
meetings.

Typically members are shopkeepers from same locality. These forms of JLGs are
somewhere between Group and Individual lending methods. While lending in such
JLGs is to individual members small JLGs still provide some sort of comfort to the
MFIs. Also collection can be done from a single point, generally from the Group
leader rather than going to each individual. As in urban areas shopkeepers do not
have time to hold meeting, these JLGs do not meet.

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INDIVIDUAL MET OD
So far we have discussed the Group based lending method. However MFIs are also
increasingly providing loans to individuals. In Individual lending method, MFIs
provide loans to an individual based on his/her own personal credit worthiness.
Individual lending is more prevalent with clients who generally need bigger size
loans and have the capacity to produce guarantee and generate enough comfort to
the MFI. MFIs generally base their decision on personal knowledge of the client,
his/her reputation among peers and society, client¶s income sources and business
position. MFIs also ask for individual guarantors or take post-dated cheques from
clients.

Individual guarantors come from friends or relatives well known to the borrower
and who are ready to take liability of repaying the loan, should the borrower fail to
do so. If the loan is significantly larger, then MFIs may also take some collateral
security.

IMPACT OF MICROFINANCE
The impact of microcredit has been studied more than the impact of other forms of
microfinance. Microcredit can provide a range of benefits that poor households
highly value including long-term increases in income and consumption. A harsh
aspect of poverty is that income is often irregular and undependable. Access to
credit helps the poor to smooth cash flows and avoid periods where access to food,
clothing, shelter, or education is lost. Credit can make it easier to manage shocks
like sickness of a wage earner, theft, or natural disasters. The poor use credit to
build assets such as buying land, which gives them future security. Women
participants in microcredit programs often experience important self-
empowerment.

Empirical studies on the impact of credit are difficult and expensive to conduct and
pose special methodological problems. Most impact studies to date have found
significant benefits from microcredit. However, only a few studies have made
serious efforts to compensate for the methodological challenges. In fact, many
studies would not be regarded as meaningful by most professional
econometricians. A new wave of randomized trial studies is now in process, which
should yield a more definitive picture.

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Even so, there is a strong indication from borrowers that microcredit improves
their lives. They faithfully repay their loans even when the only compelling reason
is to ensure continued access to the service in the future.

Other microfinance services like savings, insurance, and money transfers have
developed more recently, and there is less empirical research on their impact.
Client demand indicates that poor people value such services. MFIs that offer good
voluntary savings services typically attract far more savers than borrowers.

ISSUE OF INTEREST RATES ON LOANS TO T E

POOR
Concerns often arise as to why microcredit interest rates are higher than the bank
interest rates that wealthier people pay. The issue is cost: the administrative cost of
making tiny loans is much higher in percentage terms than the cost of making a
large loan. It takes a lot less staff time to make a single loan of $100,000 than
1,000 loans of $100 each. Besides loan size, other factors can make microcredit
more expensive to deliver. Credit decisions for borrowers who have neither
collateral nor a salary cannot be based on automated scoring. These decisions
require substantial intervention of a loan officer in judging the risk of each loan.
MFIs may operate in areas that are remote or have low population density, making
lending more expensive. This is often why traditional banks tend to stay away from
such areas. If an MFI wants to operate sustainably, it has to price its loans high
enough to cover all its costs.

Although microcredit interest rates can be legitimately high, inefficient operations

can make them higher than necessary. As the microcredit market matures in a
given country, administrative costs usually drop as managers learn from experience
and in some cases because competition forces lower pricing and greater efficiency.

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MICROFINANCE & SUSTAINABILITY
Financial sustainability is a tool for reaching the maximum number of clients.
MFIs may only operate for a limited time, reach a limited number of clients, or be
driven more by political goals than by client needs if services are not priced at
sustainable levels.

Donors and governments cannot provide enough subsidized funds to meet the huge
demand for microfinance. Even if there were enough donor and government
money, it would be better spent on other development priorities that, unlike
microfinance, cannot be delivered without continuing subsidies. Sustainable MFIs
have the potential to attract non-subsidized resources to finance expansion of
outreach. Experience has even shown that borrowers are more likely to repay
lenders who operate without subsidies at they are more confident the institution
will be around to give them future loans.

The trade-off between financial viability and reaching very poor people is much
less acute than many once thought. A number of financial providers have managed
to offer high-quality financial services to very poor people while also covering
their costs. Moreover, correlation between MFI profitability and client poverty
level has proven to be a statistically weak one. This may be more driven by the
vision of particular MFIs than by any inherent unprofitability of low-end
microcredit.

Most MFIs are still unprofitable. A more meaningful way to look at profitability is
to consider the overall number of clients served by profitable MFIs, rather than the
number of profitable MFIs themselves. In 2006, 44% of all microborrowers
captured by the MIX database) were being served by profitable institutions. If one
narrows the focus to private MFIs such as NGOs and licensed institutions, then
more than 3/5 of the borrowers are already being served profitably, and the long-
term trend is upward.

MFIs are on average more profitable than the commercial banks in their countries.
This does not show that microfinance is inherently more profitable than
commercial banking. Rather, the differential is likely due to microfinance being an
immature industry in most countries where providers¶ profits have not yet been
squeezed down. Measured by return on the equity invested by shareholders, MFIs
are on the average less profitable than banks, but this is mainly because MFIs are
not yet as fully leveraged as banks²i.e., MFIs fund their assets with more of their
own money and less of the money deposited by savers. Even so, well-managed

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microfinance have already shown to be profitable enough to integrate into
mainstream financial sectors.

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TRACK APPROAC FOR BUILDING A SUSTAINABLE
MICROFINANCE SECTOR (MFS) IN INDIA

There is a huge unmet demand for micro-finance. Bridging the demand supply gap
requires an environment that attracts large numbers of microfinance providers.
There is a need to adopt a three track approach, using mutually complementary
strategies:

· Incentivising existing mainstream financial service providers (apex financial

institutions, such as NABARD, SIDBI and HUDCO, commercial banks, insurance
companies, cooperatives, and NBFCs) to enter the microfinance sector as a serious
business proposition.

· Encouraging new microfinance institutions (MFIs) with a supportive policy and

regulatory framework and financial resources to enlarge and expand their services.

· Building a strong demand system in the form of community-based development

financial institutions (CDFIs), with the help of NGOs and others.

There are many aspects of the existing legal and regulatory framework, which
discourage mainstream FIs from increasing outreach and achieving sustainability
in microfinance.
Further growth in microfinance can only be possible by redressing these limitations
in the legal and regulatory framework. These constraints apply both to mainstream
FIs (track 1) and The concept of Local Area Banks (LABs), with a lower start up
equity of Rs 50 million, has not yet been operationalised by the RBI. The private
finance ³companies´ ± so called, but not actually companies under the Companies
Act are not allowed to take deposits, and thus their source of funds is the owners¶
personal funds and borrowings from relatives. To incorporate, at the moment there
are only two options ± either be a co-operative or be an NBFC (nonbanking
finance company).

Track 3 is grassroots up. It is desirable to build a strong demand system in the form
of community-based development financial institutions (CDFIs), with the help of
NGOs and others. Such a system is required to convert latent demand into effective

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demand, wean away microfinance customers from moneylenders, remove the
expectation of low interest rate and capital subsidies that have spoiled borrowers
over the years, restore the repayment norm, and build local stake in grassroots
financial structures. Having explained the three tracks for building the
microfinance sector in India, we focus on track 2 (MFIs), as other presenters from
India will be dealing with track 1 (mainstream FIs) and track 3 (CDFIs).

MULTIPLE DIMENSIONS OF SUSTAINABILITY

Sustainability is not just financial, there are multiple dimensions of

sustainability. We have to look at sustainability from the point of view
of:
dc Demand and Supply Characteristics and Their Impact on
Sustainability of MFIs
dc Sustainability of the Mission of MFIs
dc Legal and Regulatory Framework for Promoting Sustainability
of MFIs
dc Ownership and Governance to Promote Sustainability of MFIs
dc Financial Sustainability of MFIs
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DEMAND AND SUPPLY C ARACTERISTICS AND

T EIR IMPACT ON SUSTAINABILITY
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Demand for Microfinance Services:

The demand for microfinance services ± savings, credit and insurance ± is

apparently insatiable in India. In that sense, India is perhaps the largest emerging
market for microfinance services.
Credit: With a population of 1000 million, India has nearly 400 million people
below or just above an austerely defined poverty line. Thus, approximately 75
million households need micro-finance. Of these, nearly 60 million households are
in rural India and the remaining 15 million are urban slum dwellers. The current
annual credit usage by these households was estimated in 1998 to be Rs 4,65,000
million or US$ 11 billion. Even though the unmet demand is large, the emerging
³competition´ from mainstream banks can overwhelm MFIs, which are still in

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their nascent stage. This is so as banks are able to cross-subsidize their micro-
credit, and charge interest rates below cost and can out-price any MFI. This has
major implications for the sustainability of MFIs.

Savings and Insurance: Apart from credit, there is an unfulfilled demand for
savings and insurance services. In the case of savings services, while banks have
provided access to a large number of small depositors, the demand is nowhere near
being met. The Reserve Bank of India (RBI) has tightened up deposit taking
activity since 1997, but this has, perversely, also led to legitimate MFIs being not
allowed to take deposits and thus provide savings services to the poor. The supply
of insurance services to the poor has increased substantially over the 1990s, and
there are a large number of low premium schemes covering them against death,
accidents, natural calamities, and loss of assets due to fire, theft, etc.

The Supply of Microfinance Services and Competition for MFIs

The total outreach of the existing specialized microfinance service providers is
quite limited. Starting with credit first, we see that there is no authoritative
countrywide estimate of microcredit disbursed or clients served. We have
attempted a preliminary estimate in Appendix 1. The total barely crosses Rs 1500
million, which is not even 0.3 percent of the existing credit usage by poor families.
By March 31, 1999, banks have cumulatively financed Rs 570 million, comprising
nearly 33000 SHGs all over India. NABARD has established a goal to help
promote 1 million SHGs by 2008 AD. One million SHGs will absorb at least Rs
50,000 million worth of funds. To meet this goal, obviously, the banking system
has to cooperate with NABARD in an unprecedented big way.

In order to make MFIs sustainable, the characteristics of demand need to be

modified to ensure that diffused demand gets consolidated (such as by organising
borrowers into SHGs) and users become willing to pay full costs of services (at
efficiency levels).

Sustainability of Mission
MFIs are usually established to fulfil a mission ± of reaching credit and financial
services to the poor who are otherwise unreached by mainstream FIs. Thus MFI try
to simultaneously achieve the twin goal of access (by the poor) and sustainability
(of the institution).

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LEGAL AND REGULATORY FRAME·ORK TO PROMOTE
SUSTAINABILITY OF MFIS

Regulation helps in long term sustainability, even though MFIs may chafe under it
in the initial years. Regulation and supervision ensure that MFIs are run prudently
and cases of poor people losing their money due to fraud or incompetence, are
minimised. At present, most Indian MFIs are NGOs, and thus not treated as part of
the mainstream financial sector. Various actions and announcements of the GoI
and the RBI are indicative of the acceptance and recognition of the role of NGO-
MFIs as part of the micro-finance sector. There is also restriction on the usage,
volume of credit and channel of lending.

Ownership and Governance to Promote Sustainability of MFIs

The pattern of ownership of MFIs and good governance are crucial to their
sustainability.
Ownership can be of no one (as in NGOs), of member-users (as in cooperatives),
or of investors (as in companies). Each ownership pattern has its problems and plus
points.
Governance structures emanate from the ownership pattern, though it is possible to
have a looser or tighter governance within the same type of entity.

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As stated earlier, a vast majority of MFIs in India are non-profit NGOs, which are
legally not ³owned´ by anyone. NGO-MFIs are registered as Societies or Trusts,
under the Societies Registration Act, 1860 or the Indian Trust Acts, 1882.
Accountability is structurally limited in case of these legal forms. There is an
absence of a supportive framework for encouraging entrepreneurs to provide
micro-finance services on a for-profit basis. Indeed, the concept is looked at a bit
suspiciously both within the sector and by policy makers. Yet, this will have to
change if sustainable MFIs have to be established in large numbers.
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One has to accept the fact that as MFIs grow larger, governance is likely
to vest with professionals. Is institutional sustainability possible only in
a model where the MFI is managed by professionals? It appears so, since
the other option is to depend on exceptional charismatic leaders, whether
of NGOs or cooperatives. The microfinance sector in India at present
badly needs a large number of microfinance entrepreneurs (MFEs), who
can set up new MFIs. A systematic process for identifying and nurturing
MFEs is required.

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Human resources are the key to the long run sustainability of any
organisation as they are the ones who bring difference in the manner
MFIs operate and function. MFIs need, first and foremost, those who
will establish them, that is, the Micro-Finance Entrepreneurs (MFEs).

FINANCIAL SUSTAINABILITY

The key to MFI financial sustainability is by controlling costs and bad debts,
increasing volumes and by offering other financial services such as savings and
insurance. Most Indian MFIs are not yet financially sustainable. In order to achieve
financial sustainability, MFIs should:
· Control costs by reducing average cost of funds, cost of operations and cost of
bad debts.
· Increase volumes
· Increase services ± savings and insurance

Suggestions for Building Sustainable MFIs In India

Recommendations have been suggested for establishing an enabling environment
to promote sustainable MFIs in India. Interested readers may want to look at the
main paper for details.

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Need to Enact/ Amend Laws and Regulations

dc Amend the RBI Act, 1934 to add a chapter on MFIs

dc Establishing a new form of NBFC ± the Micro Finance Company
dc Permitting MFIs to take deposits from members/borrowers
dc Changing priority sector guidelines
dc Changes in the Acts governing NABARD, SIDBI and HUDCO
dc Changes in the Income Tax Act
dc Tax benefits need to be extended to the microfinance sector
dc Allow NGOs to give foreign grants as loans and grants to SHGs/CDFIs.
dc Simplify foreign investment regulations to enable MFIs to raise foreign
equity.
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T E NATURE OF MICROFINANCE: MICROFINANCE VS.
MICROCREDIT
Micro-credit is defined as a credit (small amounts) provided to very poor, often
unemployed people without any collateral, to help them live better1. Just small
credits can help these people to repay their previous loans and start their own new
business. The amount of credit is smaller and the credit cycle is shorter than
standard loans of commercial institutions ± typically from six to twelve months
with weekly or fortnightly installments. The system of installments; built on
regular, fixed small installments starting very early after contract is signed; is less
encumbering for clients but is more exacting from administrative aspect . The
interest rate of microcredits seems to be very high in comparison with standard
bank loans in developed part of the world. The interest earnings should cover the
probability of default, inflation and mainly the administrative costs; they can be 10
± 25 % of the sum of credits advanced by MFI2. The most of MFIs are financed
externally by international organizations, NGOs or the state budgets ± the measure
of dependence on this revenue and self-sustainability should be the talking point in
following sections.

What is microfinance? Microfinance refers to small-scale financial services ±

primarily credit and savings ± provided to people who farm or fish or herd; who
operate small enterprises or microenterprises where goods are produced, recycled,
repaired, or sold; who provide services; who work for wages or commissions; who
gain income from renting out small amounts of land, vehicles, draft animals, or
machinery and tools; and to other individuals and groups at the local levels of
developing countries, both rural and urban. (Robinson, 2001). Thus, the broader
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definition of G
 
c includes not only microcredits but also other financial
services, which can be offered to the poor. Interested economists found soon that
not only small credits but also other services connected with lending could
improve economic lives of the poorest (Bauer, Chytilova, Morduch, 2008). In these
days we can include also improvement in health care and infrastructure to the
system of microfinance. The most of MFIs connect their credit services also with
educational or saving programs or business trainings, retraining scheme or
technical trainings. Logically the investments can be more profitable when the
people have access to training, which can improve their skills. The costs of these
programs obviously increase the interest rates but the gains for both the borrowers
and MFIs outweigh them. For example in organizations as c
cand  Gc
G 
cthe training is a central part of the provision of credit. The courses
for dressmakers are very common. After successfully passing the course, women
can ask for credit on the sewing machine. The training needs to be focused not
only on business or technical skills, but also for better knowledge of proper
nourishment - mostly of children: the nutritious foods to feed children, the
importance of breast feeding or how to treat a child with diarrhea (McNelly,
Watetip, Lassen and Dunford, 1996).

Various researches found that the poor do not have all the expenditures in small
sums like for clothing and food. From time to time they need also bigger amounts
necessitated by different situations. Some can be predictable like a dowry, the
education of children, home building and festivals. Very poor people spend
surprisingly lot for various festivals (Banerjee and Duflo, 2006). Another situation
can be unpredictable like emergency cases such as a sudden sickness and injury or
wars, floods or other natural disasters. Finally yet importantly, the poor can face an
investment opportunity such as buying land or other productive assets or setting up
a new business. For these cases people should have some savings, but poor people
have difficulties to save in traditional institutions or at home, thus, they try to make
use of other non-official ways like  c

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innovative component of microfinance ± G
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BRIEF ISTORY OF MFIS

Over the past 10 years or so, microfinance has rapidly evolved and expanded from
the relatively narrow field of micro enterprise credit to the more comprehensive
concept of microfinance (which includes a range of financial services for poor
people, including savings, money transfers and insurance) to the enormous
challenge of building inclusive financial systems. Although the history of
microfinance could be divided into several pivotal parts, the revolutionary progress
was initiated in 1976 by Muhammad Yunus. This economic professor and
successful founder of the Grameen Bank of Bangladesh started out by loaning 28
USD for working capital to a group of petty traders and crafts people, mostly
women, in the village close to Chittagong University. With a simple system of
small and frequent payments and minimal paperwork, the women paid back their
loans in full and on time. In addition, micro credit program has found that women
are more likely to repay their loans and in general are more reliable borrowers. But
more importantly, given that microcredit s purpose is primarily social, women tend
to spend their own earnings on better nutrition, housing and education for their
families. This brings long-term benefits to the community, cutting into the cycle of
chronic poverty and dependency. A recent World Bank study shows that wage
levels are higher in the villages served by Grameen and that the health, education
and self-esteem of its borrowers and their families are significantly improved.

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PRODUCTS AND SERVICES IN MODERN MICROFINANCE

For a long time the offer of financial services to low-income clients meant the
granting of microloans to develop microbusinesses. The beneficiaries of
microcredit have typically been the poorest of the poor , the poor and women,
who have mainly benefited from small loans used to finance their cash flow. In the
past decades microcredit projects have assumed wider features than their original
ones. In modern microfinance the poorest of the poor is no longer the only client.
All the victims of financial exclusion have now been added to the traditional target
beneficiaries. In addition to developing countries, there are now industrialized
countries with high levels of financial exclusion; in addition to the non-profit
institutions there are an ever-increasing number of traditional credit intermediaries.

The step from microcredit to microfinance requires the effort of reconsideration of

the business models and the distribution methodology of financial services. It is not
by chance that many authors define the current period as the financial services
era and underline how the recent consideration of the variety of new financial
services motivates the knowledge of an increasing complexity and variety of needs
of low income clients (Rutherford, 2003). The poor, in fact, do not only need
productive loans: they need further financial services in order to meet other
specific needs. Examples are the demand for credit or savings in order to provide
education for their children; the need for insurance services to deal with shock or
emergency situations; the requirement for savings and insurance services to meet
the costs of old age and funeral services. From this perspective, it is then possible
to distinguish between the following needs:

a) Medium and long term funding needs (circulating and fixed capital),
b)Access to safe, fast and cheap payment systems,
c) saving and liquidity needs or d) risk hedging. Such needs can be met by using
the typologies of financial services that are typically considered in the studies of
financial intermediation: credit products ± the most common credit products in
microfinance are microcredit and microleasing.

Another essential financial service presents so-called payment services ±

alongside savings and loan products, a limited number of MFIs have begun to offer
payment services also. These are included in a category of financial services that
the poor request in order to have the possibility of transferring money through
secure channels. The demand for such services mainly derives from those
categories of clients that have a greater managerial ability and those need to
perform transactions through alternative means to cash ± often associated with
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deposit products ± such as cheques, bank transfers and credit/debit cards. Recently
some MFIs have begun to offer credit cards, debit cards and smart cards. Overall
the demand for payment services arises ± considering the necessary exceptions ±
through the specific needs of banking clients: safety, availability and accessibility
to payment instruments, fast and cheap settlement. On the other hand, the MFIs
that offer payment services are not, so far, numerous because of the complexity of
the infrastructure and the technology that payment systems require.

Last group are insurance products ± the demand for health and loan insurance
derives from the need of low-income customers to limit and cover the risks in case
of death or loss of assets. Microinsurance products, drawn up to reduce uncertainty
and its effects, represent a fundamental instrument in microfinance, given the
vulnerability of the poor to risk. Natural disasters, health problems of the
beneficiary or death of livestock, are all events that can be dealt with by
microfinance, do find in insurance cover an important management solution. It is
necessary to point out, that microinsurance is not always the best solution for
reducing the vulnerability of the poor to risks and for improving the quality of the
loan portfolio. Insurance is a high risk business; in developed countries this is
limited to insurance companies or to financial intermediaries used to managing a
single portfolio of numerous, similar, risks. In developing countries, many MFIs
operate at the limits of legality, this being due to an unfavorable legal and
regulatory context and/or the inability of many MFIs to define and successfully
manage microinsurance schemes. These aspects show how it is very often
advisable to create partnerships with formal insurance providers, rather than
offering microinsurance products directly. These partnerships present various
advantages for formal insurers as well as for MFIs. The insurers can gain access to
new markets, MFIs can benefit from the expertise of formal institutions in defining
client responsive products, without having to spend time and resources in the
design phase of the product. On the other hand, offering insurance products
directly involves incurring greater risks, especially if the insurance side of the
business is not separate from the savings and credit side. Furthermore, directly
offering insurance products requires different skills from those required for credit
or saving supply. Finally, the MFIs can incur more moral hazard problems (Torre
La, M., - Vento, G. A., 2006).

@Àc
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MICROFINANCE INSTITUTIONS AS PROVIDERS OF
FINANCIAL SERVICE

Microfinance institutions originated in developing economies. For the

understanding of their functions and operations, their position in the finance
services sector in the developing countries has to be explained first. The most
obvious group of finance providers both in developed and developing countries is
represented by well-known traditional banks. These institutions never (or hardly
ever) provide financial services to the poor clients. And there are many logical
reasons why they do not do that. The problem of  c
 cand G c
GGc(ex ante as well as ex post moral hazard) is really severe in the case of
these customers. The poor have no or very little income, they do not have steady
employment and cannot offer any collateral, which banks require. The poor clients
have no credit history, banks are too far away to verify and observe their behavior
± there is little information. In addition, the loans are generally far too
small compared to transaction costs (bad information, no addresses, no
infrastructure...).
Despite these facts, the potential of credit markets in developing countries is high.
Potential entrepreneurs are usually missing starting seed capital, but returns on
certain small businesses are fairly high. The returns on businesses in agriculture
and trade can be above 100 % annually (Mexico, Ghana, Kenya). According to
empirical evidence, annual returns on investments in microenterprises often exceed
100 percent too. The other source of finance is represented by microfinance
institutions which could be classified into three main categories, depending on the
regulatory thresholds of their organizational structures:
c
c
Gc  
 c (self-help groups, credit associations, families, individual
money lenders) properly do not have the status of institutions. They are providers
of microfinance services on a voluntary basis and are not subject to any kind of
control or regulation.
c
c
G Gc  
 c are usually registered entities, subject to all relevant
general laws.
They can be defined as microfinance financial intermediaries (MFFIs) and they
represent the most traditional category of MFI: they are mostly credit-only
institutions which provide various financial services but generally, they do not
collect deposits or alternatively they cannot grant credit, as is the case with postal

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saving banks. Therefore, MFFIs are subject to financial regulatory requirements,
according to the wideness of their financial intermediation activities, but they are
not under banking regulation. Within this category, it is possible to include
different types of institutions with different structural and organizational
complexity (financial NGOs, financial cooperatives, credit unions, postal saving
banks). The most popular and widespread are, however, financial NGOs that
operate principally by offering microcredit as part of development projects, often
combined with the offer of technical assistance and other social intervention for
beneficiaries. To this aim the NGOs make use, in part or entirely, of fund donated
by supranational institutions and agencies, as well as from donor states. Some of
the most developed NGOs offer different types of financial services, raise private
funds and collect savings from their clients. Gc  
 c can be further
classified into three main categories: microfinance banks (MFBs), microfinance
oriented banks (MFOBs) and microfinance sensitive banks (MFSBs).They can all
offer credit and they are all deposit-taking institutions: for these reasons, they are
all under banking regulation. Within MFBs, it is possible to list a limited number
of pure microfinance banks (PMFBs), cooperative banks and development banks.
PMFBs are banks specialized in offering only microfinance services. These may be
the result of upscaling of NGOs specialized in microcredit that have converted to
banks in order to maximize the economic sustainability of their initiatives and
widen their client base. Alternatively, such intermediaries may result from a
process of privatization of public banks,with the aim of providing financial support
to the local community. Lastly, they may be newly created banks which aim to
enter into the microfinance market, attracted by the large profits and positive
performances achieved by intermediaries specialized in micro-enterprises.
Microfinance services can also be offered by different types of cooperative
institutions, which operate exclusively or mainly for the benefit of their own
members. These include more organized credit unions ± such as those based in the
UK and Ireland- which offer credit and other services to their own members; the
Rotating Savings and Credit Associations (ROSCAs), more common in developing
countries, which provide rotating credit to their own members using resources
from a centralized fund made available by the savings of the members themselves;
and cooperative credit banks. Despite their differences, the common characteristics
of these institutions lie in the legal status of cooperative companies and in the
possibility to collect time deposits, mainly through partners. The chance to offer
demand deposits, on the other hand, is largely prohibited by regulatory authorities,
due to the higher complexity that would derive for those institutions in liquidity
management, as well as for the higher contribution to the systematic risk.
Development banks are large, centralized, and usually government-owned banks
created to support specific sectors (small business developing banks) or geographic
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areas (rural development banks); in some developing countries they also take the
form of private banks. Finally, in recent years, within formal microfinance
institutions, it has been possible to include some commercial banks, banking
groups and financial conglomerates. Here, two categories of intermediaries can be
identified: microfinance-oriented banks and microfinance-sensitive banks.

In the area of microfinance-oriented banks it is possible to group together all the

banks or financial institutions which are specialized in financing small to medium
enterprises and micro-enterprises and which are therefore professionally inclined to
take an active part in microfinance programmes. These are mainly small, local
banks, strongly rooted in the local territory, as well as financial institutions which
come directly from local bodies. Finally, in the sphere of microfinance-sensitive
banks it is possible to include all the banks and financial intermediaries that, for
economic reasons or for the positive externalities deriving for their own image,
view microfinance as an attractive opportunity. These consist, mainly, of banking
groups, particularly large ones, or financial conglomerates which decide to enter
into the microfinance sector downscaling their traditional activities ± albeit to a
limited extent compared to their own core business, creating specific companies or
specialized divisions within their organizations (Molyneux, P., Vallelado, E.,
2008).

MICROFINANCE IN INDIA

Microfinance sector has covered a long journey from micro savings to micro credit
and then to micro enterprises and now entered the fi eld of micro insurance, micro
remittance, micro pension and micro livelihood. This gradual and evolutionary
growth process has given a great boost to the rural poor in India to reach
reasonable economic, social and cultural empowerment, leading to better life of
participating households. Financial institutions in the country have been playing a
leading role in the microfi nance programme for nearly two decades now. They
have joined hands proactively with informal delivery channels to give microfi
nance sector the necessary momentum. During the current year too, microfinance
has registered an impressive expansion at the grass root level. The year 2008-09 is
the third year that the data on progress in microfi nance sector have been presented
on the basis of returns furnished directly to NABARD by Commercial Banks
(CBs), Regional Rural Banks (RRBs) and Cooperative Banks operating in the
country. The data includes the information related to savings of Self Help Groups
(SHGs) with banks as on 31 March 2009, loans disbursed by banks to SHGs during
the year 2008-09 and outstanding loans of SHGs with the banking system and the
@îc
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details of Non-Performing Assets (NPAs) and recovery percentage in respect of
bank loans provided to SHGs as on 31 March 2009.
The data received from banks have been compiled on region-wise, State-wise and
agency-wise basis in this booklet. The booklet also has the details related to SHGs
under Swarnjayanti Gram Swarojgar Yojna (SGSY) and exclusive women groups.
In addition, the information related to bulk lending under Bank -
Micro Finance Institutions (MFIs) ± SHGs has also been compiled.

The banks operating, presently, in the formal fi nancial system comprises of Public
Sector Commercial Banks (27), Private Sector Commercial Banks (28), Regional
Rural Banks (86), State Cooperative Bank (31) and District Central Cooperative
Banks (371). It is observed that most of the banks participating in the process of
microfi nance have reported their progress under the programme.

NABARD has been instrumental in facilitating various activities under microfi

nance sector, involving all possible partners in the arena. It has been encouraging
the voluntary agencies, bankers, socially spirited individuals, other formal and
informal entities and also government functionaries to promote and nurture SHGs.
The focus in this direction has been on training and capacity building of partners,
promotional grant assistance to Self Help Promoting Institutions (SHPIs),
Revolving Fund Assistance (RFA) to MFIs, equity/ capital support to MFIs to
supplement their fi nancial resources and provision of 100% refi nance against
bank loans provided by various banks for microfi nance activities.
c

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PROBLEMS AFFECTING MFIS

Although there have been various successful stories about microfinance institutions
helping the poor, they face many problems. The problems can be solved on many
occasions but sometimes cannot be avoided. We discuss the problems MFIs face
under the following broad categories.

1. Ethical Reasons: Microfinance Institutions can be often viewed as a profit

making organization. The desire to make MFIs an industry, commercialize micro-
lending or enable them to be a profit making institutions should not distract them
from one important aspect for which they are formed in the first place: social
service by enabling poor to work on profit making projects or small businesses.
Many a times, the lack of this aspect can lead the microfinance institutions to
behave similar to the local moneylenders. Furthermore, the important point of
corruption cannot be neglected. Another reason of failure has been lack of
motivation. MFIs thrive on better economical conditions and an economic down
turn can incur heavy loss on them. In such adverse situations, MFIs generally lose
man power too.

2. Managerial Reasons: One of the major problems which the MFIs can resolve is
managerial problems. They tend to be fairly straightforward and the solutions to
them are also pretty straightforward. Managerial problems are a major factor and
they have more effects than any other problems discussed. These problems include
mainly: lack of management training, poor record keeping and obviously lack of
management capacity.

3. Legal Reasons: Microfinance institutions can be viewed as a social organization

helping the poor and a profit organization too. In many countries, profit
organizations are registered under different set of acts and non-profit organizations
come under different legislations. On the first view, it could seem unsubstantial,
but these legalities sometimes create complications.

4. ³Unfortunate´ Reasons: Sometimes microfinance institutions have to face

problems which cannot be resolved. These problems arise in cases when something
³unfortunate´ happens to a person or a community

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CURRENT SCENARIO
The emerges is that it is very critical to link poor to formal financial system,
whatever the mechanism may be, if the goal of poverty allieviation has to be
achieved. NGOs and CBOs have been involved in community development for
long and the experience shows that they have been able to improve the quality of
life of poor, if this is an indicator of development. The strengths and weaknesses of
existing NGOs/CBOs and microfinance institutions in India indicate that despite
their best of efforts they have not been able to link themselves with formal
systems. It is desired that an intermediary institution is required between formal
financial markets and grassroot. The intermediary should encompass the strengths
of both formal financial systems and NGOs and CBOs and should be flexible to
the needs of end users. There are, however, certain unresolved dilemmas regarding
the nature of the intermediary institutions. There are arguments both for and
against each structure. These dilemmas are very contextual and only strengthen the
argument that no unique model is applicable for all situations.

c
SUCCESSFUL MICROFINANCE MODEL T AT AVE
EMERGING IN INDIA
An intermediate model that works on banking principles focus on both savings &
credit activities and where banking services are provided to the clients either
directly or through SHGs

There is also a wholesale banking model where the clients comprise NGOs, MFIs
& SHG federations. This model involves a unique package of provide both loans
and capacity building support to its partners

There is an individual banking-based model that has its clients as individuals or

joint liability groups.

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 ›

NABARD
INTRODUCTION
NABARD is set up as an apex Development Bank with a mandate for facilitating
credit flow for promotion and development of agriculture, small-scale industries,
cottage and village industries, handicrafts and other rural crafts. It also has the
mandate to support all other allied economic activities in rural areas, promote
integrated and sustainable rural development and secure prosperity of rural areas.
In discharging its role as a facilitator for rural prosperity NABARD is entrusted
with

1. Providing refinance to lending institutions in rural areas

2. Bringing about or promoting institutional development and

3. Evaluating, monitoring and inspecting the client banks

BESIDES T IS PIVOTAL ROLE, NABARD ALSO:

‡ Acts as a coordinator in the operations of rural credit institutions

‡ Extends assistance to the government, the Reserve Bank of India and other
organizations in matters relating to rural development

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‡ Offers training and research facilities for banks, cooperatives and
organizations working in the field of rural development

‡ Helps the state governments in reaching their targets of providing assistance

to eligible institutions in agriculture and rural development & Acts as regulator for
cooperative banks and RRBs

SOME OF T E MILESTONES IN NABARD'S ACTIVITIES ARE:

‡ Refinance disbursement under ST-Agri & Others and MT-Conversion/ Liquidity

support aggregated Rs.16952.83 crore during 2007-08.

‡ Refinance disbursement under Investment Credit to commercial banks, state

cooperative banks, state cooperative agriculture and rural development banks,
RRBs and other eligible financial institutions during 2007-08 aggregated
Rs.9046.27 crore.

‡ Through the Rural Infrastructure Development Fund (RIDF) Rs.8034.93 crores

were disbursed during 2007-08. With this, a cumulative amount of Rs.74073.41
crore has been sanctioned for 280227 projects as on 31 March 2008 covering
irrigation, rural roads and bridges, health and education, soil conservation, drinking
water schemes, flood protection, forest management etc.

‡ Under Watershed Development Fund with a corpus of Rs.613.71 crore as on 31

March 2008, 416 projects in 94 districts of 14 states have benefited.

‡ Farmers now enjoy hassle free access to credit and security through 714.68 lakh
Kisan Credit Cards that have been issued through a vast rural banking network.

‡ Under the Farmers' Club Programme, a total of 28226 clubs covering 61789
villages in 555 districts have been formed, helping farmers get access to credit,
technology and extension services.

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MISSION
Promoting sustainable and equitable agriculture and rural development through
effective credit support, related services, institution building and other innovative
initiatives.

OBJECTIVE
NABARD was established in terms of the Preamble to the Act, "for providing
credit for the promotion of agriculture, small scale industries, cottage and village
industries, handicrafts and other rural crafts and other allied economic activities in
rural areas with a view to promoting IRDP and securing prosperity of rural areas
and for matters connected therewith in incidental thereto".

T E MAIN OBJECTIVES OF T E NABARD AS STATED IN

T E STATEMENT OF OBJECTIVES · ILE PLACING T E
BILL BEFORE T E LOK-SAB A ·ERE CATEGORIZED AS
UNDER:
1. The National Bank will be an apex organisation in respect of all
matters relating to policy, planning operational aspects in the field of
credit for promotion of Agriculture, Small Scale Industries, Cottage and
Village Industries, Handicrafts and other rural crafts and other allied
economic activities in rural areas.
2. The Bank will serve as a refinancing institution for institutional credit
such as long-term, short-term for the promotion of activities in the rural
areas.
3. The Bank will also provide direct lending to any institution as may
approved by the Central Government.
4 .The Bank will have organic links with the Reserve Bank and maintain
a close link with in.

À@c
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 PRIMARY DATA
PART2
BRA MIN COMMUNITY
This SHG works on Community Model. This SHG provides loan to the
poor person who comes under his community. There are total 13
members in this group. Every month each person gives Rs. 5,000 for the
purpose of giving loan. And they have a bank account in Dena Bank
where they deposit these amount every month. The chairperson has the
responsibility of taking the money and depositing into the bank. Their
first priority to give loan is in its member group only and they will
charge 1% p.m and then they will give loan to the needy person. If there
is no one to take the money then the amount will be in the bank only.
And the interest earned is distributed within the group members.
ßuestions asked:
If they provide loan to the poor person then only it is applicable:
From how many years you have been providing microfinance to the
poor people?
dc From 1998, they are providing the microfinance.
·hich type of loan do you give?

dc All type of loans viz. personal loan, commercial loan, etc.

On what basis do you give the loan?

dc They provide loan on relationship basis and if there is no relation

between the parties then they sanction the loan on the basis of
credibility and their background.

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·hat is the minimum amount for the loan?
dc The minimum amount is Rs. 500
dc The maximum amount of loan given to one person is Rs. 50,000.
Do you take any security against the loan disbursed?

dc No. They don¶t take security.

·hat is the interest rate charged by you?

dc They charge 1% p.m.

·hat is the repayment ratio?
dc Till now the repayment ratio is 100%. Still no one has become bad
debt.

Any guarantors needed?

dc No guarantors needed.
From where do you get the finance?
dc There are total 13 members in the group so they bring funds
according to the loan amount. And they don¶t disbursed more than
Rs. 50,000 to one person.
·hat is the turnover of this S G?

dc Turnover is Rs. 35,00,000.

If any person doesn¶t repay the loan amount then what are the steps
that you take against the default person?

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 dc Still it doesn¶t happen so we don¶t know what we will do but we
will see why the person is not able to repay the money if the
problem is genuine then we may not take the money.
dc If the problem is not genuine then we will take the money by hook
or crook.
dc If he is unable to repay the loan then we will take it whatever
amount he/she gives.
Bishi

This SHG works on Credit Union Model.

In this Bishi, there are 276 members who help each other. It was started
before 10 years ago. The working style of this Bishi is as follows:

dc Total members: 76
dc Minimum Amount: Rs. 100
dc Weekly payment (Sunday)
dc Maturity: One year
dc Total Turnover: Rs. 1 cr
dc Penalty: Rs. 21 per share
dc Interest charge @ 2% per month.
dc If any person wants a Bishi then he has to inform before one week
and then and then only he will get the Bishi.
dc Two guarantors are needed who are the part of this Bishi.
dc If any person does not pay the amount of Bishi on time then the
chairperson will collect Rs. 21 per share as a penalty.
dc The amount of interest will be distributed within the members.
dc If any member doesn¶t pay the amount of loan on time then it is the
responsibility of the guarantors to pay the loan as well as interest.

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Advantages

dc No restrictions on members.
dc Fix interest rate.
dc No documents required.

Disadvantages

dc A person has to inform about the loan before one week.

dc Biasness can happen.
dc Loan amount will be within your liability.
dc A person has to take the B C for the whole year.

Umiya Mitramandal

It was started 3 years ago with an intention to help the small vendors
because they are unable to get the small loan from the financial
institution and if they need small loan then they go to the moneylender
which charges high interest.

dc Started since last three years back in Mehsana.

dc It is a group of people of one particular area of Mehsana. (Greeen
Park)
dc m
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c.
dc There are around 50 members on this group.
dc Recovery is easy.
dc No one is the owner.
dc Member has to pay Rs.100 per week.
dc Any member can get the loan upto Rs.5000.
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 dc If no one borrows money then that money will be given to outside
person on interest rate @ 10%.
dc Income of interest will be distributed within the members.
dc One has to pay money within three months.
dc Accounts maintained by three or four people of the group at
Ambica Parlour every night.
c

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