Micro-Finance

Abhay Vora PG-13-11 Yash Gaonkar PG-13-12 Akhilesh Gadkar PG-13-14 Nirmit Krishnamoorthy PG-13-15

Outline Of Presentation
Introduction Forms Grading system Roles and Importance of Microfinance How they get financed? Delivery models of Microfinance Implications Potentials Initiative by ICICI Bank Challenges faced by MFIs How MFIs are mitigating those challenges? Limitations

Introduction
A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. The provision of small loans(microcredit) to poor people to help them engage in productive activities or very small businesses. The term may also include a broader range of services such as Credit Facility, Saving account, Money Transfers, Remittances, Insurance and Investment. Microfinance in India is currently being provided by three sectors: the Government, the private sector and charities.

Microfinance Institution Grading System

A CRISIL MFI Grading is its opinion on the sustainability and scalability of the operations of the graded MFI. A CRISIL MFI Grading is: CRISIL's opinion on the sustainability and scalability of the rated MFI A one-time assessment based on the information provided by the MFI Assigned on an eight-point scale - mfR1 (highest grading) to mfR8 (lowest)

Role and Importance of Microfinance

Instead of using collateral to gain credit , loans are secured against the honour of a peer group. If one person fails to make his payment, others in the lending circle will be denied future credit. Importance: Poverty alleviation Employment generation Economic growth Savings & investment Financial inclusion Development of skills Social welfare Women empowerment

Delivery models of Microfinance

Grameen Bank Model:
The Grameen Bank started in 1976 by the Nobel Laureate, Professor Muhammad Yunus in Bangladesh. Participants are organised into groups of five(5) members. They make mandatory contribution to group savings and insurance fund. Each member maintains her individual saving and loan account with the bank and after contributing to the savings fund for a fixed time the group members receive individual loans from the bank. Repayment responsibility solely rests on the individual borrower. However if one member of a group defaults, that group will never receive a loan from Grameen. Many MFIs in India have also replicated this model.

Self Help Groups (SHGs)

Self Help Groups is a small group of rural poor, who have voluntarily come forward to form a group for improvement of the social & economic status of the members. Characteristics: 10 20 members Age group 21- 60 years Members of the group belong to below poverty line 1 member from 1 family Every member saves small amount regularly Group operates a bank account & maintains basic records Members should be homogenous in terms of social and financial background Members should be rural poor

Importance of SHG
Improves efficiency of credit system Channel of financial inclusion Resource mobilization Promotes saving & banking habits Empowerment of women Develop industrial skills Reduce dependence on unorganised sectors

Providing financial services to the poor: CHALLENGES

Risk management challenges due to information asymmetry problems. Accessibility (geographic accessibility and easiness to deal with). No collateral (crops), Low value and cash intensive nature of the business Illiteracy: difficult to deal with traditional services. Staff training and motivation. High interest rates Negligence of urban poor Late payments
High transaction costs

Mitigations to Challenges
Reducing Regional Disparity Regulation of MFIs Flexibility in the Programme Technical Innovations

Limitations
Deserving Poor are Still not Reached Regional Disparity High Interest Rates Unregulated Microfinance Institutions Lack of adequate quantities of risk capital Lack of long-term finance to pay for creation of the necessary infrastructure and pre-operative expense Lack of well trained staff in adequate numbers at all levels technology

 Do not wait: the time will never be 'just right'. Start where you stand, and work whatever tools you may have at your command and better tools will be found as you go along. Napoleon Hill

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