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FOUNDATIONS OF

MICROFINANCE
ABOUT THE COURSE
"MICROFINANCE IS NOT A CHARITY. IT IS A WAY TO EXTEND THE SAME RIGHTS AND SERVICES TO LOW-INCOME
HOUSEHOLDS THAT ARE AVAILABLE TO EVERYONE ELSE. IT IS RECOGNITION THAT POOR PEOPLE ARE THE
SOLUTION, NOT THE PROBLEM.“

KOFI ANNAN, SECRETARY GENERAL, UNITED NATIONS IN 2004

• Microfinance is one of those small ideas that turn out to have enormous implications.
• Microfinance successes force economists to rethink assumptions about how poor
households save and build assets, and how institutions can overcome market failures.
• Microfinance is important, interesting and challenging in the contemporary period
especially for a developing country like India.
• Microfinance course deals with the basic fundamentals of microfinancing, understanding
its supply and regulation, related credit lending theory and risks associated with
microfinance institutions.
LEARNING OBJECTIVE

• To make you familiarise with the process of microfinancing.


• To examine and analyse the microfinance models and various products disseminated by
the Microfinance Institutions. (PLO4a)
• To understand the developmental goals achieved by microfinancing and initiatives taken
by the policy bodies towards financial inclusion.
• To appreciate scientific thinking and sound reasoning for problem identification in
microfinance. To diagnose and effectively deal with the issues confronting MFIs.
GRADING STRUCTURE

PLOs assessed
Evaluation tool Marks

Quiz 15
Attendance 5
Individual Assignment 15 PLO 4a
Presentations 15
Mid Term Exam 20 PLO 4a
End Term Exam (EQ) 30 PLO 4a
Total 100
MODULE - 1
TOPICS COVERED– MODULE 1

• An Introduction to Microfinance,
• Microfinance Debates,
• Approaches in Microfinance Delivery,
• Mobile telephony,
• Internet and other technology solutions for distributing MFI products
MODULE - I1
TOPICS COVERED– MODULE I1

• Microfinance Models,
• MFI Models and Loan products,
• MFI group lending models,
• MFI individual lending models,
• MFI loan products and related issues
MODULE – III
TOPICS COVERED– MODULE I1I

• Microfinance financial Products and other products,


• MFI savings and savings products,
• MFI Micro insurance,
• Target Segments
MODULE – IV
TOPICS COVERED– MODULE IV

• Government Initiatives,
• Innovations in Microfinance,
• Role and Scope for Formal Financial Institutions and Corporate,
• Legal Forms – Covers Issues in Transformation
MODULE – V
TOPICS COVERED– MODULE V

• Key Functional Areas in MFIs,


• Interest Rate, Other Charges,
• Real Interest Rates and Their Calculations,
• MFI Ratings,
• Strategic Issues in the Growth of MFIs
WHAT IS FINANCE ?
WHAT IS MICROFINANCE ?

• Microfinance is defined as the process of providing loans, credit, savings and all other
necessary financial services and products to individuals who are extremely poor to get
access to regular sources of finance such as banks or other financial institutions.
• Major Stakeholders---Poor
• The methodology to measure poverty, as devised by Y K Alagh, in 1979 has been
improvised by the Expert Group (Lakdawala) in 1993 and then by the Expert Group
(Tendulkar) in 2009, and finally by the Planning Commission Expert group Report (C.
Rangarajan) in 2012.
POVERTY: FACTS AND FIGURES
DIFFERENCES BASED ON THE ESTIMATES
• Suresh Tendulkar Committee- Rs 27 for rural India and Rs 33 for urban India (Report Submitted in the year
2009).

• C. Rangarajan Committee- Rs 32 in rural areas and Rs 47 in urban areas (Report Submitted in the year 2012).

• Source- http://planningcommission.nic.in/reports/genrep/pov_rep0707.pdf
HOW THE POOR MANAGE FUNDS?

• The sums of money are allocated for three main purposes:


• Life cycle needs. The poor need usefully large sums of money to deal with life cycle events such as
birth, death and marriage, education and home-making, widowhood, old age and death, and the need to
leave something behind for one’s heirs, and for seasonal variations in consumption.
• Emergencies. In order to cope with impersonal emergencies such as floods, cyclones, and fires, and
with personal emergencies such as illness, accident, bereavement, desertion and divorce, large sums of
money are again required.
• Opportunities. As well as needs there are opportunities that require large sums of money, such as
starting or running businesses, acquiring productive assets, or buying life enhancing consumer durables
such as fans, televisions and refrigerators.
WHY MICROFINANCE ?

• Portfolios of the Poor: How the World's Poor Live on $2 a Day (Princeton University Press, 2009) tackles the
fundamental question of how the poor make ends meet. Over 250 families in Bangladesh, India, and South
Africa participated in this unprecedented study of the financial practices of the world's poor.
• These households were interviewed every two weeks over the course of a year, reporting on their most
minute financial transactions. This book shows that many poor people have surprisingly sophisticated
financial lives, saving and borrowing with an eye to the future and creating complex "financial portfolios"
of formal and informal tools.
• Indispensable for those in development studies, economics, and microfinance, Portfolios of the Poor will
appeal to anyone interested in knowing more about poverty and what can be done about it.
ACTIVITIES TO THE STUDENTS ?

• Write the book review of Portfolios of the Poor: How the World's Poor Live on $2 a Day
(Princeton University Press, 2009).

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