MICROFINANCE INDUSTRY AND INDIAN ECONOMY & BANGLADESH ECONOMY

PRESENTED BY:NAROTTAM KUMAR R. No. 33 NAVEEN RANA R. No. 34 NAVNEET KAUR R. No. 35 NAYEEM SAIKIA R. No.36 PINTU KUMAR R. No. 37

BANKING MICROFINANCE

What is microfinance ?
Micro finance is the provision of financial services - To those who are excluded from conventional commercial financial services. Because they are too poor to offer much - or anything - in the way of collateral .

Cont..
It presents a series of exciting possibilities for: It just not credit but also savings, insurance, and fund transfers. Extending markets. reducing poverty and Fostering social change.

Origin of Microfinance
The concept of micro finance originated in the mid-1970s in Bangladesh through a pioneering experiment by Dr. Muhammad Yunus, then a Professor of Economics. Muhammad Yunus was awarded the 2006 Nobel Peace Prize.

Cont.
Dr. Mohammad Yunus Established Bangladesh Grameen Bank Providing financial services and entrepreneurship opportunities to poor. So they could produce, manage and maintain their own finances. It was an end to mistreatment by money lenders.

Objectives
Extend banking facilities to poor people. Eliminate the exploitation of the poor people by money lenders. Create opportunities for self-employment for unemployed people in rural Bangladesh. Reverse vicious circle of "low income, low saving & low investment", into virtuous circle of "low income, injection of credit, investment, more income, more savings, more investment, more income".

Microfinance Products
Micro savings A possibility to save money without no minimum balance. Allows people to retain money for future use Members may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees Micro insurance The different types of insurance services are life insurance , property insurance, health insurance and disability insurance.

Cont
Micro leasing For entrepreneurs or small businesses who cant afford buy at full cost they can instead lease equipment, agricultural machinery or vehicles. Money transfer A service for transferring money, overseas to family or friends. Money transfers without opening current accounts are performed by a number of commercial banks through international money transfer systems such as Western Union , Money Gram, and Anelik.

Types of Microfinance Institutions

Non Profit MFIS/NGO MFIS: These are societies under the Societies Registration Act, 1860. they carry out both non financial & financial activities apart from financial intermediation as they are prohibited from carrying out financial activities For Profit MFIs: They include NBFCs registered under Companies Act, 1956 & banks which provide microfinance apart from other banking services. Mutual Benefit MFIs: This category includes state credit cooperatives, national credit cooperatives & mutually aided cooperative societies (MACS) During 1980s & 1990s, several NGOs entered the microfinance sector providing micro loans. NABARD & Small Industries Development Bank of India(SIDBI) became intermediaries b/w the poor borrowers & the banks. During the late 1990s there was a growing trend of NGOs transforming into microfinance organizations. Banks were not willing to lend to the MFIs as they were not sure of their credit worthiness. Thus M-CRIL(Micro Credit Ratings International Limited) was launched.

Process of Micro Loan distribution

A micro credit program gives small loans to the poor so that they can procure whatever they need to start a small local business of their choice.

Cont.
A micro loan of Rs.5000 - 20000 at 1 or 1.5% interest per month, can empower people to start their own business By that money they can start business of:

Cont.

Kirana store

Bangles shop

Buy a cow or buffalo to sell milk

Candle Making

Small garments manufacturing unit

Fruit and vegetable shop

Process of Micro Loan distribution

In the absence of collateral, the loans are made to groups of five, mostly women, who guarantee each others' loans. Called Joint liability Group (JLG).

Cont.
If a woman wants to receive a loan and if her idea for a business is accepted, she is encouraged to find four other women and form a group

Then, the first two women are given loans and the others are encouraged to help them make their enterprise a success. After about 6 weeks, if the first two are making their payments on time, the next two women get their loans and six weeks later the last one.

Cont.
All persons who have paid back a first loan, are automatically eligible for a second loan and eventually a third so their businesses can grow. At the same time from the interest, the loan fund is growing, though slowly, and loans are available to more persons.

Cont.
If one does not pay back one's loan, no one in the group will receive a second loan.

To guard against emergencies, such as one's cow dying and not being able to repay the loan, an emergency fund is set up at the time of the first loan.

Need of microfinance
1) Banks have not provided financial services, such as loans, to clients with little or no cash income. Banks incur substantial costs to manage a client account, regardless of how small the sums of money involved. For example : Although the total gross revenue from delivering one hundred loans worth $1,000 each will not differ greatly from the revenue that results from delivering one loan of $100,000.

2)

3)

Cont
4) Money lenders usually charge higher rates to poorer borrowers than to less poor ones. 5) when poor people borrow they often rely on relatives or a local moneylender. 6) An analysis of 28 studies of informal money lending rates in 14 countries in Asia, Latin America and Africa concluded that 76% of moneylender rates exceed 10% per month.

Social Impact of Microfinance

The empowerment of women. As the microfinance services mostly offered to women, they are now more financially literate and confident.

Building Economic citizenship

Financial services foster Independence. Microfinance can help clients to grow more confident and with that economic citizenship they can step out and become economical. sound.

To fight with poverty

Normally If a poor household loses a source of income he might have to withdraw a child from school or selling valuable assets or fall deep into poverty.

 Financial services give clients to access to education, healthcare, and other necessities that improves their quality of life. i.e. school fee loan, health insurance and home improvement loan.

Dark side of Microfinance

Micro Loans should never lends to individuals without first providing them with the expertise and training to build a business plan that is likely to succeed.

Another point in this regard is that mere flow of funds alone in MF sector cannot bring desired level of social impact unless other infrastructure is enough in the given area/region to absorb the funds.

Multiple lending and overindebtedness:

It is not unusual that poor households borrow from more than one source, formal as well as informal. statistic with an average 4 loans per family, in AP. credit, to ill-informed clients and by poorly trained staff driven by perverse incentives often leads to disasters.

Microfinance Interest rates

It has been reported in the media that MFIs charge between 2660% p.a.

Coercive collection practices

Serious irregularities and arm-twisting methods for recovery of money that MFIs adopt.

As many as 30 rural borrowers have committed suicide in Andhra Pradesh in last year following their inability to pay back loans taken from microfinance institutions at exorbitant interest rates.

Indian economy
The Economy of India is the eleventh largest in the world by nominal GDP. The fourth largest by purchasing power parity. Economists predict that by 2020, India will be among the leading economies of the world.

Industry Sector
1)Industry accounts for 28% of the GDP and employ 14% of the total workforce. 2)India is 12th in the world in terms of nominal factory output. 3) Textile manufacturing is the second largest source of employment after agriculture and accounts for 20% of manufacturing output.

Service sector
Since 1960s, there has been a steady decline in the contribution of agriculture and primary sector to Gross Domestic Product (GDP), and its place has been taken by service based enterprises. Thus, service sector encompasses the major areas of trade, finance, insurance, communications, public utilities, transportation, health care, education, business and personal services.

Cont.
1) India is 13th in services output. The services sector provides employment to 34% of the work force. 2) It has the largest share in the GDP with 55.3%

Agriculture
1) India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing accounted for 16.1% of the GDP. 2) It employed 52.1% of the total workforce. 3) India is the largest producer in the world of milk, jute and pulses, and also has the world's second largest cattle population with 175 million animals in 2008.

Cont.
It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively.

Growth Expected in India

2020
GDP growth rate 13%

2015
GDP growth rate 9.5% Services contribution 60 %

Services contribution 65-70% FDI limit is expected to be 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc. Balance of Trade Should be positive with increased level of exports as compared with imports

2006
GDP USD 590 billion GDP growth rate 9 % Services contribution 54 % FDI limit not 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc. Balance of Trade USD (-)46.2 billion Investment goal USD 250 billion

FDI limit is expected to be close to 100 percent in major industry sectors such as Telecom, Semiconductors, Automobiles, etc. Balance of Trade Should increase with surging exports as compared with imports

Microfinance in India
Magazine Forbes In its first ever list of World's Top 50 Microfinance Institutions which has named seven such entities in the list of world's top 50 -highest for a country. Bandhan at the second position Microcredit Foundation of India (ranked 13th) and Saadhana Microfin Society (15th) Grameen Koota (19th), Sharada's Women's Association for Weaker Section (23rd) SKS Microfinance Private Ltd (44th) and Asmitha Microfin Ltd (29th).

Concentration More in South India

Key Reasons
The origination of the bank SHG linkage program in Karnataka largely through the initiatives of the nongovernment organization (NGO) MYRADA and the consequent greater participation of Karnataka-based banks, such as the Syndicate and Canara Banks, in the program More vibrant local economies in the southern states compared to the less developed states in the north and east Higher literacy and participation rates of women in the local economy making them more suitable clients for MFIs.

Key Players
SKS Microfinance Ltd. Spandana Sphoorty Financial Limited Share Microfin Limited Bandhan Asmitha Microfin Ltd. Shri Kshetra Dharmasthala Rural Development Project (SKDRDP) BASIX Microcredit Foundation of India Grameen Koota

Number of branches as on March'2010

Bandhan

1550 1056 Number of branches

SHARE

Spandana

1533 1627

SKS

CONT..
In India, Micro finance is growing faster than banking and, if the experience in other developing countries is mirrored here, microfinance will reach more individuals than the banking sector,
- Robert Annibale, global director Citigroup Inc. Microfinance

35 30 25
Nos. of Clients in Millions

20 15 10 5 0 2008 2010 2015

Banking Microfinance

*For 2015 the projection sourced from citigroup microfinance

Microfinance in Andhra Pradesh

Why do poor need financial services? A study in Andhra Pradesh revealed that for the poor, about 50% of all risky events were characterized as health-related and another 28% were nature-related. Responses to these risks 1st preference of the rural poor is borrowing (money lenders have very high interest rates, subject to exploitation), Followed by mortgaging/selling assets (often under difficult conditions that limits the value received for such assets). Why don't they just go to a bank? The poor rarely have access to the formal financial sector No money to open a savings account No collateral or credit record to secure a loan Illiterate so cant do paperwork

Bangladesh economy
1) The economy of Bangladesh is a developing marketbased economy 2) Bangladesh ranked as the 48th largest economy in the world 3) The economy has grown at the rate of 6-7% p.a. over the past few year 4) Currency of Bangladesh is taka.

CONT..
More than half of the GDP belongs to the service sector, nearly half of Bangladeshis are employed in the agriculture sector, with RMG, fish, vegetables, leather and leather goods, ceramics, rice as other important produce.

Contribution in GDP (est.) 1) Agriculture: (18.6%), 2) Industrie: (28.6%), 3) services: (52.8%)

Agriculture of Bangladesh
Bangladesh's labor-intensive agriculture has achieved steady increases in food grain production despite the often unfavourable weather conditions Most Bangladeshis earn their living from agriculture. Although rice and jute are the primary crops, maize and vegetables are assuming greater importance. rice can be grown and harvested three times a year in many areas. Tea is grown in the northeast.

Manufacturing & Industry

Main industries cotton textiles, jute, garments, tea processing, paper newsprint, cement, chemical fertilizer, light engineering, sugar.

Many new jobs - mostly for women - have been created by the country's dynamic private ready-made garment industry, which grew at double-digit rates. mostly women, were employed in the garments sector as well as Leather products specially Footwear(Shoe manufacturing unit). Bangladesh has overtaken India in apparel exports in 2009, Other industries which have shown very strong growth include the chemical industry, steel industry, mining industry and the paper and pulp industry.

CONT..
textile products, is the nation's number one export earner. Bangladesh is 3rd in world textile exports. Export $ 16.7 billion in 2009-10.

Investment
The stock market capitalization of the Dhaka Stock Exchange in Bangladesh is 5649.645. Major investment from foreign investors have led to a massive building boom in Dhaka and Chittagong.

Grameen Bank
Established in 1976 in Jobra village in Bangladesh by Professor Muhammad Yunus . It provides credit to the poorest of the poor in rural Bangladesh without any collateral. By June 2010: -2,564 branches in 81,362 villages -8.28 million borrowers (90% are women). Total equity: -90% - Borrowers -10% - Government

Economy of United States

The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be nearly $14.7 trillion in 2010. GDP growth 2.9% (2010) GDP by sector agriculture: (1.2%), industry: (21.9%), services: (76.9%). Inflation (CPI) 1.6% (2011) GDP per capita $47,132 (2010)

Microfinance in the United States

Idea of Microfinance was born in Bangladesh and migrated to U.S. Microfinance Emerged at a time of a Paradigm shift. Commitments to: 1. Fiscal Discipline. 2. Deregulation. 3. Interest rates. 4. Market-Oriented approaches.

Characteristics of Microfinance in the U.S

First Programs is modeled after Grameen Bank and Group Lending Concept. Shift to Individual Lending. Emphasis on Training and Skills Development. Goals of Microfinance in U.S.: 1. Job Creation and Income Generation. 2. Individual and Community Empowerment. 3. Relationship Building and Community Development.

Major U.S Microfinance Programs

ACCION U.S. 1. Focus on Lending and

loans. 2. CREDIT BUILDER 3. Lent $100 million to 10000 people in 33 communities. 4. 80% of borrowers are minorities 50% are women. 5. Lends to persons with a proven track record. 6. Awards and achievements.

Microfinance Programs in U.S

Southern Good Faith Fund (SGFF) : 1. Nonprofit affiliate of Southern Bancorp. 2. Originally modeled after Grameen Bank but has shifted focus overtime. 3. Three Primary Areas of focus: a) Asset Builders program. b) Business Development center. c) Career Pathways program.

Economy of Tanzania
Currency Tanzanian shilling (TZS) GDP : $57.5 billion (2009) GDP growth: 6.4% (2010) GDP per capita $1,500 (2010) GDP by sector: Agriculture (26.6%), Industry (22.6%), Services (50.8%) Inflation :12.10% (2010)

Microfinance in Tanzania
Microfinance is still, a relatively new concept in Tanzania It was mainly linked to women and poverty alleviation. The National Microfinance Bank is an institutional provider of microfinance services. It plans to add 16 more branches and offices that can offer microfinance services. NMB encourages and expands microfinance in three ways:

CONT
Loans to micro and small enterprises for the purchase and inventory and supply of goods. Collection and payment services to large corporate clients to/from micro and small enterprises. Add-on services such as money transfers and payroll services to both the large corporate clients and micro and small enterprises.

Microfinance in Bolivia
Microfinance has been developing in Bolivia for almost twenty years and its evolution can be divided into distinct stages. The first stage is when a number of what later came to be the leading MFIs were founded in (1986) and operated as microcredit NGOs for a number of years.

CONT
The second stage was the transformation of the leading NGOs into regulated financial intermediaries, a process that began in 1992. During this period the Bolivian banking authorities generated the special non-bank license for finance companies (FFP). The third stage of microfinance development in Bolivia began in 1999 with a generalized macroeconomic crisis that seriously affected the sector.

CONT.
Lately, the microfinance sector seems to have finally consolidated after the crisis, and growth rates in terms of both clients and volume of operations on both sides of the balance sheet.

Microfinance in Brazil
The story of microfinance in Brazil has mostly been one of the unfulfilled promise. There are approximately 10 to 15 million households in the informal sector in the country yet. The microcredit industry has reached fewer than 300,000 of these households.

CONT.
In Brazil, there are roughly four types of institutions offering microfinance services. Only one of these organizations is offering anything besides credit services State-owned development bank Public Interest Civil Society (OSCIPs) Microenterprise Credit Society (SCMs) Commercial banks

CONT
It is significant, however, that these types of institutions only offer credit services to poor households and micro entrepreneurs. The Brazilian government began to recognize the bottleneck this created and in recent years has promoted a number of regulatory amendments that have pushed commercial banks into the market. to increase access to financial services on the part of the general population, especially lower income sectors. Banks were allowed to establish Banking Correspondents .

Microfinance in Indonesia
Indonesia has a centurylong history in microfinance that dates back to Dutch colonial times at the close of the 19th century. There are many varieties of formal, semi-formal and informal financial institutions, as well as subsidized government programs offering loans linked to sector development or poverty alleviation.

CONT.
The total number of MFIs are 60,760 or around 7 times the number of branches of commercial banks. These MFIs collectively served more than 18.6 million people (8% of the population). Commercial Banks (including Bank Rakyat Indonesia BRI):- established originally to implement a government-subsidized agricultural credit program. They were subsequently reorganized to offer commercial microfinance at scale, and they handle the largest portion of microfinance in Indonesia.

QUESTIONS TO BE ASKED