Setting a Microfinance Institution

presented by :
Dipika Baishya CMS – Business Design 03
Shivanjali Phatak PGP Business Design 25
Contents
1. Introduction to Microfinance

3. History of Microfinance in India

5. Organization structure
Introduction to microfinance
What is micro credit
What is micro finance
What is microfinance Institution
How does it work
Types of MFI

http://www.unitus.com/sections/poverty/poverty_res_faq.asp
 Micro credit is the practice of extending small
amounts of credit to the working poor

 income-generating employment
 A micro credit loan is quite literally a small loan, typically
between 2000 rupees to 6000 rupees, depending on the
geographic location
 Microfinance is a suite of financial products
savings
loans
insurance
that microfinance institutions (MFIs) offer to poor
clients

 They are called “micro” finance products because

they are particularly targeted to the working poor
and thus the needs of the working poor require
that these products be small in nature
 A microfinance institution (MFI) is an organization
that provides financial products

Micro credit loans

insurance
access to savings to micro-entrepreneurs — the
working poor who previously were without
access to financial services

 Muhammad Yunus -founders of the microfinance

movement calls them as
Banks for the Poor
 Focus - the poor are their main clientele, and their
work is strictly about serving this client base with
financial services

 Sometimes MFIs also provide additional (non-

financial) services
 business training
 health education
 literacy programs
 partner with another MFI
How does it works ?
 The most common microfinance product is a
microcredit loan

 These tiny loans are enough for hardworking

micro-entrepreneurs to start or expand small
businesses such as
weaving baskets
raising chickens
buying wholesale products to sell in a market
etc

 Income from these businesses provides better

food, housing, health care and education for
entire families, and most important, additional
 In addition MFI provide

 secure place to save their money

 access to insurance for their homes, businesses
and health

Microfinance institutions (MFIs) are now innovating

to help meet these needs, empowering the poor
to improve their own lives
MF Services Client Repayment

Monitoring

Favorable at both
ends of credit cycle imply + ve impact
Need of an MFI ?
Aggregate Demand for microfinance = 15$
billion

Loan provided = 2.3$ billion

Current microfinance clients in India 15

million

Poverty ratio in India = 30%

600 MFI poverty outreach = 35%

Compared to 62% and 65 % in Bangladesh

 The World Bank's definition of the poverty line, for
under developed countries, like India, is US$
1/day/person or US $365 per year

 Thus as per this definition, more than 75% of all

Indians are, probably, below the poverty line

 As per the Government of India poverty line

Urban Rural

296 /- per 276/- per

month month
•The Indian economy at present is at a crucial
juncture

•on one hand, the optimists are talking of India

being among the top 5 economies of the world by
2050

• on the other is the presence of 350 million poor

forming 26 % of the total population

If India is to stand among the committee of

developed nations, there is no denying the
fact that poverty alleviation & reduction of
income inequalities has to be the top most
priority
History of microfinance in India
 Bangladesh is recognized as the inspirational base
in micro finance

 Fist wave of Nationalization of banks in 1969 in

India

 1976 establishment of RRB- Regional rural banks

 Directed credit was the mantra of the Indian

Financial sector

 The network of RRB and primary cooperatives – to

meet the needs of rural sector had not proven
successful
 Cooperatives suffered by mismanagement ,
corruption

 IRDP- GOI main poverty alleviation program

termed as the “worlds largest microfinance
program”

 Commercial banks gave loans of less than 15000

rupees to poor people for over 20 years

 It has roughly provided assistance to 55 million

families- which suggest that almost all 60 milllion
poor families were covered by IRDP
 However this was not the case
There were cases of repeat assistance reported(
delibrate)
Unjustified selection of beneficiaries

 IRDP loans were subsidized loans, prompting

excessive misuse and misappropriation of fund

• Net result- Repayment rate was 25- 30 % only

• The 2 decades of IRDP i.e. in 1980s and 1990s

affected the credibility of micro borrowers

• Hindered the access of low income client to

banking services
• Over the past 20 to 25 years , the vacuum in
financial system had started filling with efforts
of influential development organization such as

• SEWA bank (Ahmadabad)

• Annapurna Mahila Mandal(Mumbai)
• working women forum( Chennai)

• During 1990 there was entrance of NGOs in

microfinance

• 1995 there was a creation of new generation of

co-operatives- Mutually aided cooperative
societies (MACS)
• MACS lied outside the preview of the state

• Current MACS engaged directly in microfinance

exceeds the number 1000

• Initially many NGO-MFI were funded by grants

and funds by donors

• In recent years……
• Apex institutions like NABARD- National bank for
agriculture and rural development , SDBI- Small
development bank of India, and microfinance
promotion organizations like rastriya mahila
kosh provide wholesale loan to MFI

• Thus MFI are like intermediaries between large

finance institutions and the retail borrowers
composed of group of people or individuals

• NABARD->commercial banks-> SHG

• NGO MFI are user friendly financial aid however

one concern is its outreach is tiny compared to
its need
Process followed by us
DS Microfinance Institution
Organization structure
 DS
Microfinance
Institution

Financial
Strategic Operations
modeling
Team team
team

Banks Banks
providing providing
Rural credit Rural credit

Head Office Head Office Head Office Head Office

(State Wise) (State Wise) (State Wise) (State Wise)

Branch Office Branch Office Branch Office

(Regional (Regional (Regional
Level) Level) Level)
Products Offered By DS MFI
Based on 2000 data
Thank you
DS micro finance Institution

Head office: Delhi

Will constitute 3 main teams Strategic Team, Operational Team,
Financial Modeling Team
Will be Headed by a CEO
Strategic Director, Operational Director and the Financial Director will report to
the CEO

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Strategic Team

Articulate the mission and goals of the MFI

Define markets and clients
Analyze the environment
 Competition
 Collaborators
 Regulatory factors
 Other external elements
Performing an institutional assessment( audit of the state offices and
branches)
Board and management issues
Human resource management
Administration
Financing
Financial management
Developing a strategy

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Operational Team

Define products and services

Specify marketing channels
Plan institutional resources and capacity
Forecast and analyze financial projections

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Financial Modeling Team

Setting up the model and bring in and work out initial balances
Analyze credit and savings products
Project credit and savings activity
Estimating loan loss provision, reserve, funds and write-offs
Projecting administrative (Head office, state office and branch
office )expenditures
Analyzing financing by source
Analyzing projected financial statements
 Income statement
 Adjusted income statement
 Balance sheet
 Cash flow
 Financial indicators

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Head Office (state wise)

Secure loans from RRB, commercial banks

Distribute to the Branches
Analyze financing by source
Cost of funds
Liquidity and investment analysis
Projecting credit and savings activity

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Branch office (Regional Level)

Secure loans from the State Office

Distribute to the SHG(self help group) and Individuals
Projecting credit and savings activity
Estimating required caseload
Analyze the repayments

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