Impact of Microfinance in India: Tilika Chawda C50

IMPACT OF
MICROFINANCE IN INDIA
TILIKA CHAWDA C50
C O R P O R AT E F I N A N C E MICROFINANCE IN INDIA | 1
What is Micro-Finance?
“Microfinance is an economic development tool whose objective is to assist the poor to work their way out
of poverty. It covers a range of services which include, in addition to the provision of credit, many other
services such as savings, insurance, money transfers, counselling, etc.” – Reserve Bank of India
What is Micro-Finance?
• The proposed Microfinance Services Regulation Bill defines microfinance services as “providing financial assistance to an
individual or an eligible client, either directly or through a group mechanism for:
1. Rs.50000 or lesser amount, for an individual for small and tiny enterprise, agriculture, allied activities (including
consumption purposes of such individual) or
2. Rs.150000 or lesser amount for an individual for housing purposes, or
3. any other purpose not exceeding Rs.150000
FEATURES
• Beneficiaries are from low income group.
• Loans are of small amount.
• Short duration loans.
• Loans are offered without collateral.
• High frequency of payment.
• Loans are generally taken for income generation purposes.
DEMAND
• India’s poverty estimates range from 26% to 50%. Out of these, 87% do not have access to credit.
• Demand for microfinance is $30 Bn. whereas supply is only $2.2 Bn.
• Only 5% people in rural India has access to microfinance. Even deposit account facility is out of reach by 70% of rural
poor.
• Less than 15% of people have access to insurance.
• Healthcare access is negligible.
SUPPLY
• The microfinance segment has around 165 lenders in the
microfinance segment. This group comprises NBFC-MFIs,
NBFCs, Banks, SFBs, and other non-profit entities.
• As of 31st March 2018, NBFC-MFIs accounted for 33% of

microfinance lending. The aggregate gross loan portfolio
(glp) of MFIs stood at Rs 48,094 Cr. This represents a yoy
growth of 50% over FY 16-17.
• Average loan outstanding per account is Rs 19,031

representing a growth of 20% over FY 16-17
EVOLUTION OF
MICROFINANCE IN INDIA
1982 –
NABARD was
1976 –
established by an
Ordinance was
1975 – act of Parliament
replaced by
to implement the
Prathama bank
1975 – Regional Rural
National Bank for
(first RRB) came
Bank Act.
Rural bank Agriculture and
1974 – into existence.
Ordinance was Rural
Establishment of
passed. Development Act
Self-Employed
1981 on the
Women‟s
recommendations
Association
of Shivaraman
(SEWA) in Gujarat.
Committee.
2006 –
NABARD launched the
1999 – „Micro-Enterprise
SIDBI created Development
1992 – Microcredit (SFMC) to Programme‟ (MEDP)
NABARD launched create a national skill development
1990 – SHGs-Bank Linkage network of strong,
SIDBI was established program. viable and sustainable
through Small Microfinance
Industries Institutions from the
Bank of India Act 1989. informal and formal
financial sector to
provide microfinance
Micro-credit v/s Micro-finance
• Microcredit refers to very small loans for unsalaried borrowers with little or no collateral, provided by legally registered
institutions. Currently, consumer credit provided to salaried workers based on automated credit scoring is usually not
included in the definition of micro credit, although this may change.
• Microfinance typically refers to microcredit, savings, insurance, money transfers, and other financial products targeted at
poor and low-income people.
Channels Outstanding Loan Portfolio
The players in the Microfinance sector can be classified as
falling into three main groups:
1. The SHG-Bank Linkage Model
2. Non-Banking Finance Companies
3. Others including trusts, societies, etc

SHG - Bank Linkage Model
NBFC
Others
TYPES OF MFI
1. SELF HELP GROUP (SHG)
A SHG is a group of 15 to 20 members from very low income families, usually women, which mobilises savings
from members and uses the pooled funds to give loans to those members who need them, with the interest
rates on deposits and loans being determined entirely by members.
2. JOINT LIABILITY GROUP (JLG)
JLG is an informal group of individuals coming together for the purpose of availing of bank loan either singly or
through the group mechanism against mutual guarantee in order to engage in similar type of economic activities.
REGULATORS OF MFI IN INDIA
1. The NBFC-MFIs are regulated by the Reserve Bank of India.
2. The insurance products offered by NBFC-MFIs come under the
purview of Insurance Regulatory and Development Authority (IRDA).
3. The pension products offered by NBFC-MFIs come under the
purview of Pension Fund Regulatory and Development Authority
(PFRDA).
4. Section 35(6) of the Banking Regulation Act, 1949, empowers
NABARD to conduct inspection of State Cooperative Banks
(SCBs), Central Cooperative Banks (CCBs) and Regional Rural
Banks (RRBs). In addition, NABARD has also been conducting
periodic inspections of state level cooperative institutions such as
State Cooperative Agriculture and Rural Development Banks
(SCARDBs), Apex Weavers
Andhra Pradesh Microfinance Crisis
(2010)
• The state of Andhra Pradesh experienced a impressive expansion of
microfinance operations from the 1990s into the 2000s
• Andhra Pradesh is also known as the “Mecca of Microfinance” in India.
• In October of that year a media storm blew up over the suicides of
close to 50 microcredit clients whom, it was claimed, had taken their
lives under the duress of crippling debt burdens and coercive
repayment tactics initiated by microfinance employees.
• Considerable anger was vented at microfinance institutions that were
seen to be accumulating riches at the expense of the poor.
• In response, the Andhra Pradesh government clamped down on
MFIs. The government passed and ordinance and later Andhra
Pradesh Microfinance Institutions (Regulation of Money Lending) Act
2010, effectively shutting down all private sector microfinance
operations.
Key Restrictions Posed by the Act were:
• Every MFI has to register before the Registering Authority of the district.
• No member of an SHG can be a member of more than one SHG.
• All loans by MFIs have to be without collateral.
• All MFIs have to display the rates of interest in their premises.
• The recovery towards interest cannot exceed the principal amount.
• No MFI can give a further loan to a SHG or its member without the
approval of the registering authority where there is an outstanding bank
loan.
• Every MFI has to give to the borrower a statement of his account and
acknowledgements for all payments received from him.
The main rationale was that these MFIs are using SHG to expand
their borrowers through predatory lending, charging usurious interest
rates and using weekly recovery system, recovery agents and
coercive techniques.
MICRO-FINANCE STATISTICS
• As on Mar 31 2012, total employee strength of MFIs was 72765, 11%
of them being women.
• Around 97% of MFI clients are women.
• Average loan outstanding in FY 2011-12 was Rs. 7509, up by 10%
from previous year.
• As on Mar 31 2012, there was 9743 MFI branches across 26 states.
• One microfinance branch served 2070 clients on average. There was 307 clients per employee.
In percentage terms NPA against loans to SHGs increased from 6.09% in 2011-12 to 7.08% during 2012-13.
Grameen Bank Origin
• is a microfinance organisation and community development bank founded in Bangladesh in 1976 by
Professor Muhammad Yunus at University of Chittagong.
• It makes small loans to the impoverished without requiring collateral.
• In October 1983 the Grameen Bank was authorised by national legislation to operate as an independent bank.
To whom does it cater to?
• Grameen has offered credit to classes of people formerly underserved: the poor, women, illiterate, and
unemployed people.
• Loans are better than charity to interrupt poverty.
• Promote financial independence among the poor.
• Particular emphasis on women, who receive 95 percent of the bank's loans
Funding
• In the initial years, donor agencies used to provide the bulk of capital at low rates.
• By the mid-1990s, the bank started to get most of its funding from the central bank of Bangladesh.
recently, Grameen has started bond sales as a source of finance.
Key projects in India include:
• Expanding services to help members of women’s groups repay their microfinance loans safely using mobile
phones, and creating products that help poor families.
• Piloting a program to help poor families use their bank accounts more actively.
• Supporting the national roll-out of mobile health tools for pregnant women, new mothers and frontline health
workers.
• Linking health, nutrition, agriculture, and gender, we connect more poor women in Rajasthan State to available
services through Freedom from Hunger India Trust.
THANK YOU

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IMPACT OF

• Loans are of small amount.

• Short duration loans.

• Loans are offered without collateral.

• High frequency of payment.

• Loans are generally taken for income generation purposes.

• Less than 15% of people have access to insurance.

• Healthcare access is negligible.

• As of 31st March 2018, NBFC-MFIs accounted for 33% of

• Average loan outstanding per account is Rs 19,031

The players in the Microfinance sector can be classified as

falling into three main groups:

1. The SHG-Bank Linkage Model

2. Non-Banking Finance Companies

3. Others including trusts, societies, etc

rates on deposits and loans being determined entirely by members.

2. The insurance products offered by NBFC-MFIs come under the

purview of Insurance Regulatory and Development Authority (IRDA).

3. The pension products offered by NBFC-MFIs come under the

purview of Pension Fund Regulatory and Development Authority

NABARD to conduct inspection of State Cooperative Banks

(SCBs), Central Cooperative Banks (CCBs) and Regional Rural

Banks (RRBs). In addition, NABARD has also been conducting

periodic inspections of state level cooperative institutions such as

State Cooperative Agriculture and Rural Development Banks

(SCARDBs), Apex Weavers

microfinance operations from the 1990s into the 2000s

• Andhra Pradesh is also known as the “Mecca of Microfinance” in India.

• In October of that year a media storm blew up over the suicides of

close to 50 microcredit clients whom, it was claimed, had taken their

lives under the duress of crippling debt burdens and coercive

repayment tactics initiated by microfinance employees.

seen to be accumulating riches at the expense of the poor.

• In response, the Andhra Pradesh government clamped down on

MFIs. The government passed and ordinance and later Andhra

Pradesh Microfinance Institutions (Regulation of Money Lending) Act

2010, effectively shutting down all private sector microfinance

• No member of an SHG can be a member of more than one SHG.

• All loans by MFIs have to be without collateral.

• All MFIs have to display the rates of interest in their premises.

• The recovery towards interest cannot exceed the principal amount.

approval of the registering authority where there is an outstanding bank

acknowledgements for all payments received from him.

their borrowers through predatory lending, charging usurious interest

rates and using weekly recovery system, recovery agents and

• Around 97% of MFI clients are women.

from previous year.

• As on Mar 31 2012, there was 9743 MFI branches across 26 states.

Professor Muhammad Yunus at University of Chittagong.

• It makes small loans to the impoverished without requiring collateral.

• Loans are better than charity to interrupt poverty.

• Promote financial independence among the poor.

• Particular emphasis on women, who receive 95 percent of the bank's loans

recently, Grameen has started bond sales as a source of finance.

phones, and creating products that help poor families.

services through Freedom from Hunger India Trust.

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