Presentation on

Microfinance
Presented By:
Deepjyoti Pokhrel (09)
Kaveri Banikya (25)
Madhurjya Gohain ( 29)
Nazrul Islam (34)
Microfinance- An Introduction
Consultative Group to Assist the Poor (CGAP)
defines Microfinance as the supply of loans,
savings, and other basic financial services to the
poor. People living in poverty, like everyone else,
need a diverse range of financial instruments to
run their businesses, build assets, stabilize
consumption, and shield themselves against risk.
Financial services needed by the poor include
working capital loans, consumer credit, savings,
pensions, insurance, and money transfer services.
Thus, Microfinance can help in increasing the
credit access to the poor and can provide them
with the necessary financial services, thus
ensuring them with a one-stop shop for
accessing all the financial instruments from
savings to insurance.
Principles of Microfinance
As per CGAP, key principles governing
microfinance are:
oPoor people need a variety of financial
services, not just loans.
oMicrofinance is a powerful tool to fight
poverty.
oMicrofinance means building financial
systems that serve the poor.
o Microfinance can pay for itself, and must do
so if it is to reach very large numbers of poor
people.
o Microfinance is about building permanent
local financial institutions.
o Interest rate ceilings hurt poor people making
it harder for them to get credit.
o The role of government is to enable financial
services.
o The key bottleneck is the shortage of strong
institutions and managers.
o Microfinance works best when it measures
and discloses its performance.
Objectives of Microfinance
oPoverty alleviation,
oEmpowerment of women,
oFinancial sustainability, outreach
& impact.
Beneficiaries of Microfinance
Revolution
Microfinance has the ability to touch upon all
the aspects of the rural economy. However,
there are few direct beneficiaries of this
revolution.
One of the major group that get benefitted is
Women.
Women make up nearly half of the rural poor
and they lack the required financial resources.
These women form nearly 80% of the clientele
to the microfinance institutions.


Services in Microfinance
oMicro Credit: Small amount of money loan to the
client and often without collateral.

oMicro Savings: Deposit services allowing one to
save small amount of money for future purposes
and often without minimum balance
requirements.

oMicro Insurance: Insurance facilities with low
amount of premium as well as low sum assured.

Clients
oIn rural areas, they are usually small
farmers and others who are engaged in
small income-generating activities such as
food processing and petty trade.
oIn urban areas, micro finance clients are
more diverse and include shopkeepers,
service providers, artisans, street vendors,
etc. Micro finance clients are poor and
vulnerable non-poor who have a relatively
unstable source of income.
Delivery Vehicles of Microfinance
The most commonly identified mechanisms
of distributing Microfinance are:
1. Non-Governmental Organizations
(NGO),
2. Commercial Banks,
3. Microfinance Institutions (MFI).
Micro finance Models
o Microfinance Institutions: MFIs are an
extremely heterogeneous group comprising
NBFCs, 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.
o Bank Partnership Model: The bank
is the lender and the MFI acts as an
agent for handling items of work
relating to credit monitoring,
supervision and recovery.
o Service Company Model: The bank
forms its own MFI, perhaps as an
NBFC and then works hand in hand
and the MFI uses the branch network
of the bank as its outlets to access
wide base of clients at a low cost.

Challenges facing Microfinance
oSustainability of the institutions.
oRecovery mechanism of loans.
oOutreach of these institutions.
oPerformance assessments of these
institutions.
oLong term socio-political impact of the
microfinance activities.
oService delivery approaches.
Conclusion
Microfinance has been hailed as a new age
solution to alleviate poverty and bring economic
prosperity to the rural economy.
Even the most rigorous econometric studies
have proven microfinance can smoothen the
consumption level significantly & reduce the
need to sell assets to meet basic needs.
However, in spite of its commendable success,
its aims are far from achieved & MFIs have
many frontiers to conquer and their reach has to
be broadened.

It has to achieve the objectives by carefully
balancing the social factors with economic
factors influencing the rural economy.
Ultimately it can achieve them only by being
a self-sustained movement that does not
depend on external forces for its survival.




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