MICROFINANCE

PRESENTED BY,
RAHEEL ABBAS
1MS18MBA40
TABLE OF CONTENT
• Definition
• Features and Need of the Microfinance
• Evolution of Microfinance in India
• Difference between Microcredit vs.
Microfinance
• Microfinance Institutions (MFIs)
• Self Help Group (SHG) and Joint Liability
Group (JLG)
• Priority sector lending
• Conclusion
• Bibliography
MICROFINANCE: DEFINITION
“Microfinance is an economic development tool whose
objective is to assist the poor to work their way out of
poverty. It covers a range of services which include, in
addition to the provision of credit, many other services
such as savings, insurance, money transfers,
counselling, etc.” – Reserve Bank of India

In other words, Microfinance serves as a tool for

providing financial services to the low-income
population., which do not have access to the
mainstream financial services.
SALIENT FEATURES OF
MICROFINANCE
• Beneficiaries are from low income group.

• Loans are of small amount.

• Short duration loans.

• Loans are offered without collateral.

• High frequency of payment.

• Loans aregenerally taken for income generation

purposes.
NEED FOR MICROFINANCE
• India’s poverty estimates range from 26% to 50%. Out of
these, 87% do not have access to credit.

• Demand for microfinance is $30 Bn. whereas supply is only

$2.2 Bn.

• Only 5% people in rural India has access to microfinance.

Even deposit account facility is out of reach for 70% of rural
poor.

• Less than 15% of people have access to insurance.

Healthcare access is negligible.
 NEED FOR MICROFINANCE

South & East have dominant share of micro loans in India.

EVOLUTION OF MICROFINANCE
IN INDIA
• 1974 – Establishment of Self-Employed Women’s
Association (SEWA) in Gujarat.

• Sep 26, 1975 – Rural bank Ordinance was passed.

• Oct 02, 1975 – Prathama bank (first RRB) came into

existence.

• 1976 – Ordinance was replaced by Regional Rural Bank Act.

• July 12, 1982 – NABARD was established on the

recommendations of Shivaraman Committee, by an act of
Parliament to implement the National Bank for Agriculture
and Rural Development Act 1981.
EVOLUTION OF MICROFINANCE
IN INDIA
• Apr 02, 1990 – SIDBI was established through Small
Industries Development Bank of India Act 1989.

• 1992 – NABARD launched SHGs-Bank Linkage program.

• 1999 – SIDBI created Microcredit (SFMC) to create a

national network of strong, viable and sustainable
Microfinance Institutions from the informal and formal
financial sector to provide microfinance services to the
poor, especially women‟‟.

• 2006 – NABARD launchedthe “Micro-Enterprise

Development Programme (MEDP)" for skill development.
MICROCREDIT VS. MICROFINANCE

 Microcredit refers to very small loans for unsalaried

borrowers with little or no collateral, provided by
legally registered institutions. Currently, consumer
credit provided to salaried workers based on automated
credit scoring is usually not included in the definition of
micro credit, although this may change.

 Microfinance typically refers to microcredit, savings,

insurance, money transfers, and other financial products
targeted at poor and low-income people.
MICROFINANCE INSTITUTIONS
(MFIS)
Microfinance institutions in India are registered as one
of the following five entities:
• Non Government Organizations engaged in microfinance
(NGO-MFIs), comprised of Societies and Trusts.

• Cooperatives registered under the conventional state-level

cooperative acts, the national level multi-state Cooperative
Legislation Act (MSCA 2002), or under the new state-level
Mutually Aided Cooperative acts (MACS Act)

• Section 25 Companies (not-for-profit)

• For-profit Non-Banking Financial Companies (NBFCs)

• NBFC-MFIs
SELF HELP GROUP (SHGS)

“A SHG is a group of 15 to 20 members from very

low income families, usually women, which
mobilises savings from members and uses the
pooled funds to give loans to those members who
need them, with the interest rates on deposits and
loans being determined entirely by members."

-Reserve Bank of India

JOINT LIABILITY GROUP (JLGS)

“JLG is an informal group of individuals coming

together for the purpose of availing of bank loan
either singly or through the group mechanism
against mutual guarantee in order to engage in
similar type of economic activities."

- Reserve Bank of India

 DIFFERENCE BETWEEN SHG
AND JLG
• The SHG would normally consist of 10 to 20 members whereas
a JLG would normally have between 4 and 10 members.

• The maximum amount of loan to SHGs should not exceed four

times of the savings of the group. The limit may be exceeded in
case of well managed SHGs subject to a ceiling of ten times of
savings of the group. JLGs are not obliged to keep deposits with
the bank and hence the amount of loan granted to JLGs would
be based on the credit needs of the JLG and the bank's
assessment of the credit requirement.

• In case of a SHG the individual carries the responsibilities

whereas in case of JLG all members share responsibility and
stand as guarantee for each other.
PRIORITY SECTOR LENDING
These are small value loans to farmers for agriculture
and allied activities, micro and small enterprises,
poor people for housing, students for education and
other low income groups and weaker sections.

Priority Sector includes the following categories:

• Agriculture
• Micro and Small Enterprises
• Education
• Housing
• Export Credit
• Others
CONCLUSION
 It is clear that gender strategies in micro finance
need to look beyond just increasing women's
access to savings and credit and organizing self-
help groups to look strategically at how
programmes can actively promote gender equality
and women's empowerment.
 On the other hand, thank to women’s capabilities
to combine productive and reproductive roles in
microfinance activities and society has enabled
them to produce a greater impact as they will
increase at the same time the quality of life of
the women micro-entrepreneur and also of her
family.
BIBLIOGRAPHY
 “NABARD initiatives turn rural women into entrepreneurs”, The
Hindu, Feb 20,2004
 Wirth L. 2004. “Breaking Through the Glass Ceiling: Women in
Management.” International Labour Organization. Geneva.
Online at
http://www.ilo.org/public/english/region/ampro/cinterfor/tem
as/gender/doc/lindaw04.htm
 Prema Basargekar, N.(2009), “How Empowering is Micro
Entrepreneurship Developed through Microfinance”,Asia-Pacific
Business Review
 Vidya Sekhri, N. (2007). “Growth and Challenges Faced in Micro
–Finance”, Journal of IMS Group
 http://rmk.nic.in/chap1.htm
 http://www.evancarmichael.com/African-Accounts/1676/Who-
are-the-clients-of-microfinance-FAQ.html
 http://ifmr.ac.in/cmf
Thank You