Assignment On Micro Finance Institution

Prepared by: Sachi Singh Roll no. -290 PGDM (IB-SDP)-2nd Year

About Hybrid financial services Hybrid financial services (HFS) can play a major role in reaching out to the poor funded by NABARD. The whole idea of (HFS) started with internal introspection regarding the innovations which the poor had been traditionally making, to meet their financial service needs. It was observed that the poor tended to come together in a variety of informal ways for pooling their savings and dispensing small and unsecured loans at varying costs to group members on the basis of need. Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services. Mission "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." Those who promote microfinance generally believe that such access will help poor people out of poverty.

Problems identification:        Deviating from the mission or objective Started giving loans to even non-SHG groups The model adopted by SKS caused a great loss to MFIs The poor people over burdened with loan High interest rates Too many laws and governing bodies led to close down of few MFIs As seen in the State of Andhra Pradesh (India), these systems can easily fail. Some reasons being lack of use by potential customers, over-indebtedness, poor operating procedures, neglect of duties and inadequate regulations  They also found it distasteful to be forced to pretend they were borrowing to start a business, when they were often borrowing for other reasons (such as paying for school fees, dealing with health costs or securing the family food supply)  Limited management capacity in MFIs  Institutional inefficiencies

HFS and MFIs Should consists of: With new technologies and computerization of banking operations meet the needs of a modern economy. Due to this mainly the financially excluded sections of the population is untouched.HFS plans to penetrate to the untouched sections. As MFIs started off well but due to improper monitoring and transparency, etc failed. Learning from their failures HFS has come up with the following:  Each state should come up with its own laws in regard to MFIs which should be approved by RBI  RBI should bring all regulatory aspects of microfinance under a single mechanism  Code of conduct should be prepared by each state and should be submitted to the RBI or in-charge head. It will then make the code of conduct by referring to each states code of conduct. He will be the sole decider what should be added and what not along with reasons  The code of conduct should include the mission, governance, transparency, interest rates, handling of customer grievances, staff conduct, recovery practices, etc  Opening of specialised microfinance branches in urban areas for addressing the requirements of the urban poor. As there are no clear estimates of the number of people in urban areas with no access to organized financial services  Unlike micro savings and micro credit, micro insurance is a key element for people at bottom of the pyramid. The poor face more risks than the well-off, but more importantly they are more vulnerable to the same risk  Poor people need not just loans but also savings, insurance and money transfer services.  Microfinance institutions should measure and disclose their performance both financially and socially

Thus, microfinance must be useful to poor households in helping them raise income, build up assets and/or cushion themselves against external shocks, building permanent local institutions, means integrating the financial needs of poor people into a country's mainstream financial system, interest rate ceilings hurt poor people by preventing microfinance institutions from covering their costs, which chokes off the supply of credit and the key bottleneck is the shortage of strong institutions and managers."