THE SCOPE OF MICRO FINANCE IN RURAL AREA

PRESENTED BY: VIRENDRA AGARWAL APM MF & FI RAJKOT

 Poor people do not save / do not have the

capacity to save. Poor people do not have credit needs. Poor people are not trust-worthy. They will not repay the loans. Poor people lack entrepreneurship and cannot take up IGAs. Poor lack formal education and cannot maintain records. Poor need subsidies and loans at cheap rates. The fact is that poor need timely and adequate credit. Moneylenders provide TIMELY loans at HIGH interest rates.

 Target oriented and poor quality of lending

Cumbersome loan procedures

Delayed credit and leakages of subsidy Lack of healthy banker/customer relations Low recovery, restricting recycling of funds High NPAs affecting viability of banks

 Formal Institutions
Public & Private Banks
State Owned Rural

Informal Institutions
Moneylenders
Pawn Shops Traders

Banks Cooperative Banks Non Banking Finance Companies

Friends & Relatives

Unregulated MFIs Self Help Groups

1904 Microfinance has been in practice for ages ( though

informally).Legal framework for establishing the cooperative movement set up.

1934 Reserve Bank of India Act provided for the establishment

of the Agricultural Credit Department.

1969 Nationalization of banks. 1975 Regional Rural Banks created. 1976

Grameen Bank, Yunus

1982 NABARD established as an apex agency for rural finance. 1995 Passing of Mutually Aided Co-op. Act in AP in 1995.
Source: Doug Johnson, The Geographic Distribution Of Microfinance Services In India 2007

Partnering with Institutions Refinance Support to Banks

Encouraging Innovations

Support to MFIs

Financial assistance to SHG formation

Interventions
Micro enterprise Promotion among SHG members Marketing Support

Facilitating Bank Linkage

Training & Capacity Building

 Micro credit Credit alone Production related Individuals Banker knows the

Micro Finance Credit , savings & other

services
Need related
Groups / individuals Borrowers knows the

borrowers need

best

 Financial Economic Social Political

 Self Help Group Model

Grameen Model
Community Based Savings Group

Individual Banking

Affinity group of 10-20 members Weekly group meetings Leader elected by group members Small and regular savings Group has a savings bank account operated by group representative Internal lending to members from own savings External loan to the Group as a whole Disbursement of loans to members at the discretion of group

 5 member Joint liability Groups 40 member centers Weekly group meetings Established methodology for Client screening Group recognition Loan sanctioning Collections Collections enforced through Joint liability Peer pressure One time membership fee Savings a compulsory component

 Group of people who primarily save Operate in cycles of one-year : Pay-out

Only internal loans

No ledgers Profit dependent on share of savings

 Primarily Cooperatives

Borrowers, members of cooperative

Credit-worthiness and Loan Security Cooperative Membership: Peer Pressure and

Membership Savings (Assumed)

SUCCESS STORIES THROUGH MICRO FINANCE ACTIVITIES

DISBURSEMENT AMOUNT: Rs.100000/-

DISBURSEMENT AMOUNT: Rs. 75000/-

SUCCESS STORIES THROUGH MICRO FINANCE ACTIVITIES

DISBURSEMENT AMOUNT: Rs. 100000/-

DISBURSEMENT AMOUNT: Rs. 100000/-

 Appropriate legal structures for the structured growth of MF operations Finding adequate levels of equity for the new entities to leverage loan

funds Ability to access loan funds at reasonably low rates of interest. Ability to attract and retain professional and committed human resources. Design of apt MIS including user friendly software for tracking accounts and operations. Appropriate loan products for different segments Ability to innovate, adapt and grow. Bring out a compendium of small and micro enterprises for the MF clients. Identify and prepare a panel of locally available trainers. Ability to train trainers. Capacity to provide backward linkages or create support structures for marketing.

 Poor people can and will save Credit is not the only financial service required by

poor

Access along with moderate interest rates critical

for credit for poor financial matters

Women are more responsible than men in

Peer pressure works as a collateral

THANK YOU