Micro Finance

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CONTENTS:  Introduction  Definition  Strategic Policy Initiatives  Activities In Micro Finance  Micro Finance In India  Is Micro finance creating financial capital?  Self Help Groups  How SHG work  Sources of capital and links between SHG’S banks  SHG’S Linkage Model  Micro Finance Models  Conclusion

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Provision of financial services such as credit,saving, and

insurance Poor individuals which fall below the poverty line Impact of improving livelihood opportunities through the provision of capital Founded of the grameen bank in bangladesh by yusuf Group lending, individual lending , the provision of savings and insurance, capacity building, and agricultural business development services Creation of social value

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SHGs, NGOs,NABARD,1995 The National Microfinace Taskforce,1999 Working Groups on Financial Flows to the

Informal Sector.2002 Microfinance Development and Equity Fund,NABARD,2005 Working group on Financing NBFC’s by BanksRBI

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Microcredit Micro savings Micro insurance Remittances

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Micro Finance In India Credit Agency

Percentage of Rural Households

Government

6.1

Cooperative Societies

21.6

Commercial banks and RRBs

33.7

Insurance

0.3

Provident Fund

0.7

Other Institutional Sources

1.6

All Institutional Agencies

64.0

Landlord

4.0

Agricultural Moneylenders

7.0

Professional Moneylenders

10.5

Relatives and Friends

5.5

Others

9.0

All Non Institutional Agencies

36.0

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100.0

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Is Microfinance creating financial capital? Invest in an Income generating activity Poverty reduction Depends on borrowers Difficulty to isolate the effect of microcredit Depends on the interest rates micro finance

institutions charge Net capital accumulation Raises difficulty ethical questions about making profits on the back of the poor 11/30/09

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SELF HELP GROUPS(SHGs) Major role on poverty alleviation in rural india Actively engage in saving and credit Create some contorl over capital-very small amounts Gradually away form explotation and isolation

Definition: NABARD (1997) defines SHGs as "small, economically homogenous affinity groups of rural poor, voluntarily formed to save and mutually contribute to a common fund to be lent to its members as per the group members' decision".

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Contd: 10-25 members Government of government and non-governmental

ageneies,they non-governmental agencies,they now make up 90 % of all SHG’s Rules and regultaions of SHG’s vary according to the members and those facilitating their formation Collect savings form members typically once a week Start without any external financial capital Small internal loans for micro finance enterprise

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Sources of capital and links between SHG’s and banks Link up with financial institutions-loans for

investments in rural enterprise NGO’s and banks are giving loans –Matching

loans Repayment-Recommendations by group

faclitators, collaterals provided

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SHG’s-Bank linkage model: MODEL I:

Bank itself as a Self help Group Promoting Institution(SHPI) MODEL II: Groups are formed by NGO’S or by government agencies MODEL III: It is formed and nurtured by other agencies

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Rate of Interest under SHG - Banks Linkage programme Particulars Existing rate of Revised rate % p.a Interest p.a NABARD to Banks Refinance 6.5% 6.5 % Banks to SHG 12% Banks to NGOs 10.5% No of participating Bank 202 550 Bank loan release (Rs in Millions) 570 520

No of NGO participating NABARD Refinance

Loan per family 1,019 (release Rs in Millions) 11/30/09

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finance services offered to the poor:

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MICRO FINANCE MODELS: Micro Finance Institutions Bank Partnership Model Banking Correspondents Service Company Model

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India’s achievement of the MDG of halving the population of poor

by 2015 as well as achieving a broad based economic growth also hinges on a successful poverty alleviation strategy. In this backdrop, the impressive gains made by SHG-Bank linkage programme in coverage of rural population with financial services offers a ray of hope.

Underlying Belief of Self Help Groups.............. “Give a man a fish and you feed him a day but teach him how to

fish and you feed him a lifetime” Many little things done in many little places, by many little people, will change the face of the world. - An old Chinese saying

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