Professional Documents
Culture Documents
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Improving access to poor to institutional credit was accorded the highest priority. State partnership in coops, Nationalization of commercial banks, Establishment of RRBs, Multi agency approach, Branch expansion in unbanked areas Financial sector reforms in 1990s
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High transaction cost of servicing large number of small loan cases Higher perceived risk associated with rural lending Inadequate legal framework for financing tenants, share croppers etc. Attitude of the banking staff towards rural lending
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Microcredit or microFinance?
Micro credit
Objectives
Micro Credit is about delivering credit to low-income clients Credit alone minimalist
microFinance
Objectives
MicroFinance is about providing access to financial services &
building capacities to manage money
Focus
The focus is on delivering credit which is production related
Focus
The focus is on financial services delivering credit which is need related
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Micro Finance (mF) : Provision of thrift, credit and other financial services and products of credit of very small amount to poor in rural, semi-urban and urban areas for enabling them to raise their level of income and standard of living. Micro Finance Institutions (mFIs) : Institutions which provide either partly or exclusively thrift, credit and other financial services to poor in rural, semi-urban and urban areas.
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Model I : NGOs act as facilitators in forming and nurturing of groups while banks give loans directly to groups. Model II :NGOs play an additional role of financial intermediation. NGOs borrow funds from banks for on lending to groups Model III :Banks themselves form the groups and lend money money directly
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Model
Percentage
Model I
Model II Model III
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72
7 21
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Model 2
Model 3
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2004-05
16,18,456
68,985
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60000
50000
40000
Rupees
30000
20000
10000
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20000
10000
5000
Total
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States with poverty below national average States with poverty above national average No. of NGOs in the state State HDI
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-0.505
-0.089
0.39 -0.06478
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Observations
No correlation between Spread of SHGs and the poverty and HDI of Indian states indicating uncontrolled spread of SHGs States having incidence of poverty lower than national average seem to have a better spread of SHGs as compared to states having higher incidence of poverty SHG bank linkage programme seems to be following presence of NGOs in states rather than extent of deprivation and poverty
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SHGs
Observations
During 1004-05, 41082 branches of 573 banks participated in SHG Bnak Linkage programme Public sector and Private sector commercial banks togather have promoted 52% of SHGs and extended Bank loan of 60% All 196 RRBs participated in SHG Bnak linkage programme. While their share in SHGs was 35% the share in loan was 30% Share of scheduled commercial banks in SHG bank linkage programme was 87% while loan it was 90% Cooperative banks are late starters partly because of required amendment in cooperative societys Act to lend to SHG and partly because of their poor financial health. Their share in the SHG was 13% while loan was 10%
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Inadequate understanding of the goal of the programme Lack of basic accounting skills Presence of heterogeneity among groups leading to social conflicts High promotional costs, who will bear the cost ? ( Rs. 10,000/SHG) Limited Capability of SHG promoters Absence of standardized systems & procedures ( Book keeping, MIS etc.) Competition among various micro finance providers NGO Level Inadequate motivation to promote and train groups Inadequate knowledge of book keeping & accounting
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Constraints-bank level
Lack of concentrated efforts by banks Inability of banks to identify NGOs with savings and credit groups Lack of motivation among bankers Limited number of large sized NGOs with previous background of working with SHGs Insistence on NGOs and SHGs rating Inadequate training for staff for promoting, nurturing SHGs Perceived higher risk associated with lending to SHGs Insistence on impounding of deposits as collateral for loans
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Constraints-bank level
Participation of Cooperative banks in SHG-bank linkage programme has been low because
Slow reforms process Lack of proper infrastructure like training centres Lack of specialized staff to pursue micro finance Laws in some states prohibit coops lending to SHGs Dual control on cooperatives, poor resource base, lack of managerial ability & higher level of NPAs etc.
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SHGs are allowed borrow only to the extent of 4 times of their saving. This restricts lending programme Donor funds are limited The share of cooperative Banks in SHGs bank linkage programe is minimal NGOs unwilling to deal with financial matters as they are for social development SHPIs do not have resources to meet promotional costs Absence of State level support organisations Absence of synergy between the efforts of state level and govt. due to lack of mechanism
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% Share
87%
Role of NABARD
Linkage programme on pilot basis was started by NABARD in 1992 NABARD involves VAs, bankers, formal and informal entities to promote and nurture groups Provides 100% refinance to banks, considers as priority sector lending, provides bulk lending & Revolving Fund Assistance(RFA) to NGOs Conducts training & workshops for NGOs, Bank Staff & SHGs Policy advocacy and publicity Operates Micro Finance Equity and Development Fund (MEDF)
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Role of NABARD
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mFIs - Types
I) Not-for-Profit-mFIs a) Societies registered under Societies Registration Act. b) Public Trusts registered under Indian Trust Act,1882 c) Non- Profit Companies registered under section 25 of Companies Act, 1956
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MFI- Variants
Standalone MFIs Not for profit MFIs
Trusts
Deposits not allowed Donor fund & bank borrowing Not regulated Requires no capital
Societies
Deposits not allowed Donor fund & bank borrowing Not regulated Requires no capital
Sec 25 company
Deposits not allowed Donor fund & bank borrowing Regulated by ROC Requires no capital
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NGOs Registered as cooperative societies, Public trusts, not for profit companies, SHG federations, Noncommercial NGOs NGOs are multipurpose also involve in other developmental work About 1000 NGOs are involved in Micro finance are limited in Number I.e., ASA, CARE etc. NGOs involved in promotion of SHGs but without financial intermediation are not considered micro finance institution such as MYRADA, DHAN foundation etc Roughly NGO MFIs account for one million borrowers over 300 crore outstanding loan
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NABARD
SIDBI
> Capacity Building > Equity > On lending > Transformation Loans
Banks
Federations L o a n s
Cluster
Individuals
SHGs
Federations
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Though NGOs are working as financial institutions most of the are not trained for undertaking credit business NGOs are not permitted to mobilise deposits, donor funds are limited, they do not have their own resources therefore micro finance through NGOs may not sustain NABARD, SIDBI, RMK and FWWB provide funds only to Non profit organizations and not to commercial micro finance
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NGOs can not earn profit as they violate Income Tax act sec.11(4) thereby lose charitable status. In the long run primary source of funds is deposits, NGOs can do this provided they are going concern. Hence NGOs have depend on borrowing on the basis of equity which they not have.
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They are to be either state co-operatives or national cooperatives Cooperatives can be incorporated as mFI in states like Maharashtra, Gujarat where cooperatives are strong such as Sewa Bank, FWWB, CDF In other states cooperatives are under state control Cooperatives suffer from loan losses, higher NPA, lack of professionalism, dual control Mutually Aided cooperatives Societies (MACS) only in a few states I.e. Mahila vikas in A.P.
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mFIs can borrow from foreign institutions but liable to suffer from foreign exchange fluctuations Overseas Commercial Borrowing (OCB) has been allowed for which NBFCs have to provide for sovereign guarantee which is at 3% and above
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NABARD has evolved SHGs rating norms Vidyanathan Committee recommendations may reform the cooperative credit structure NBFCS and local area banks are being regulated by RBI Quality and quantum of RRBs lending will go up because of their merger and declining NPAs
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Financial support for MFIs Enabling provisions for MFIs to resort to ECB, Venture funds etc. Capacity building support for MFIs Financial assistance from MEDF to all the MFIs Reaching poorest and poorer region is still a challenge SHG bank linkage model is promising as well as problematic Sustainability of MFIs is yet to be established
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Committed leadership Professional staff Appropriate credit delivery and recovery Good governance Participatory and decentralized management Transparency Flexibility Innovations Diversified products Trouble shooting and coping up capacity
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Enabling legal and regulatory environment Building social capital Women as agents of change Remaining client friendly and cost effective Appropriate pricing of products Use of appropriate ICT Access to continuous funding Strong MIS Risk management strategy Regular supervision and audit Standarised accounting
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THANK YOU
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