N. L.

DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

SRISHTI, SECTOR 1, MIRA ROAD (E), MUMBAI 401 104

CERTIFICATE
This is to certify that Ms. Ashwini Hegde student of Masters in Management Studies (Finance) batch of N. L. Dalmia Institute of Management Studies and Research has satisfactorily completed final project on A Study of Microfinance under my supervision and guidance as partial fulfillment of requirement of Masters in Management Studies course, Mumbai University, 2005 07.

Signature: Prof. Naveen Bhatia Head of Finance (Project Guide) Place: Mumbai Date:

Signature: Prof. P. L. Arya Director

A PROJECT REPORT ON

A STUDY OF MICROFINANCE

SUBMITTED BY:

MS. ASHWINI HEGDE MMS (FINANCE) 2005 - 07

PROJECT GUIDE:

PROF. NAVEEN BHATIA

N. L. DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

SRISHTI, SECTOR 1, MIRA ROAD (E), MUMBAI 401 104

ACKNOWLEDGEMENTS
No endeavor achieves success without the cooperation of others which goes a long way in shaping and formulating a project.

I take this opportunity to extend my heartfelt gratitude to Prof. P. L. Arya and my guide Prof. Naveen Bhatia who has guided me through the duration of the project with patience and helped wherever I faltered.

Last but not the least I would like to thank all the students and staff members of N. L. Dalmia Institute of Management Studies and Research who helped me in my endeavor.

Ashwini Hegde MMS (Finance)

N. L. Dalmia Institute Of Management Studies and Research

EXECUTIVE SUMMARY
Microfinance is a provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low income households and their microenterprises.

The demand or need for microfinance comes from the disadvantaged sections of the society who are without access to services of formal sector financial intermediaries and are typically excluded from the formal banking system for lack of collateral. It includes the poor and the very poor.

Microfinance can give opportunities poor and the extreme poor to break the vicious circle of poverty. Infact, a new successful circle can be set up: "low income, credit, investment, more income, more credit, more investment, more income".

Microfinance services are provided by three types of sources: formal, semiformal and informal sources.

The objectives of microfinance are poverty alleviation, women empowerment and financial sustainability with outreach and impact.

Microfinance faces various challenges such as overcoming geographical limitations and reaching out to the extreme poor. There is vast potential for rural banking in India because the formal institutions like banks and co-operative societies have not been able to tap

the full potential which exists in these areas. There is a vast urban rural divide in the operations of banks. The outreach of microfinance can be extended by developing and implementing new business models, using information and communication technology (ICT) and diversifying microfinancial services. Lessons in microfinance can be learnt from various experiments and innovations carried out in microfinance in other countries all over the world. E.g.: Grameen Bank of Bangladesh, BancoSol of Bolivia. From India itself, lessons can be learnt from the innovations, initiatives and growth of ICICI Bank in the field of rural credit and microfinance.

TABLE OF CONTENTS
Page No.
1-8 1-2 3 4-7 8 9 - 15 9 - 10 11 - 12 13 - 14 15 16 - 30 16 - 17 18 - 19 20 - 23 24 25 - 26 27 - 30 31 - 44 31 - 34 35 - 39 40 - 44 45 - 66 45 - 58 59 - 66 67 - 77 78

Sr. No.
1. 1.1 1.2 1.3 1.4 2. 2.1 2.2 2.3 2.4 3. 3.1 3.2 3.3 3.4 3.5 3.6 4.

Particulars
MICROFINANCE: AN OVERVIEW Introduction to Microfinance Myths about Microfinance Objectives of Microfinance Challenges in Microfinance POVERTY AND MICROFINANCE Poverty Indias Rural Financial Landscape Microfinance Service Providers in India Products Offered POTENTIAL FOR RURAL BANKING IN INDIA Background Reasons for Gap in Availability of Financial Services The Rural Urban Divide Between Banks The Rural Sector Some Interesting Pointers Rural banking in India - Challenges Meeting the Challenges of Banking in Rural Areas EXTENDING OUTREACH OF MICROFINANCE

5.

4.1 New Business Models 4.2 Leveraging Microfinance using ICT Solutions 4.3 Diversifying Microfinancial Services CASE STUDIES, EXPERIMENTS AND INNOVATIONS IN MICROFINANCE 5.1 Case Studies on Microfinance 5.2 Innovations and Experiments in Bridging the Gap AN INDIAN TRENDSETTER: ICICI BANK BIBLIOGRAPHY

6. 7.