List of Indian Issues of Microfinance and their Explanation and Supporting Studies

Vivek Kumar Tripathi Institute Research Scholar School of mangment studies MNNIT,Allahabad vivektripathimba@gmail.com List of Indian Issues of microfinance 1. Economys investment efficiency Explanations Supporting studies

2.

Product delivery mechanism and supply of credit by conventional financial institutions

3.

Outreach and Sustainability

4.

Financial sustainability

It is well argued that the basic root of poverty is dearth of asset and inadequate flow of income. Consequently credit and savings has a crucial role in improving economic conditions of poor people since it can handle risky economic environment and enhance an economys investment efficiency there was also a divergence between the demand for credit by the poor people particularly in terms of products and product delivery mechanism and supply of credit by conventional financial institutions (Jindal 2008). A new form of institutional credit innovation, microfinance emerged in late 1970s in Bangladesh to bridge the gap in accessing credit facilities for excluded sections of people. Outreach is perceived goal from social and business point of view. The gloomy part of the story looms when the issue of sustainability of the microfinance program have come out since it is observed that only few percent of the MFIs are sustainable to run operation without subsidies (Hulme and Mosley 1996). Outreach and impact are complementary in nature in achieving microfinance sustainability. Financial sustainability indicates that income from the microfinance services should be greater than the cost of providing services. Therefore, selfsufficiency is an indication for the financial sustainability of the MFIs. As the microfinance industry matures, the definition of the self-sufficiency has commenced to slender and currently sustainability refers only two levels

(Besley 1995).

(Jindal 2008).

(Hulme and Mosley 1996).

(Ledgerwood 1999: 216-17).

5.

6.

7.

8.

9.

ofsustainability by the most of the people associated with this industry. Gender disparity Women entrepreneurs who have started small entrepreneurs through SHGs expand them into large scale units even then a large number of problems lagging them. Some researcher observed that micro credit intervention benefited many women entrepreneurs in terms of shifting from wage to self-employment , increased income, repayment of old debts, purchase of assets, sending of kids to schooling etc. .Micro credit intervention through SHGs also reduces the gender disparity in access to institutional credit. A lot of research studies reported that gender disparity is gradually narrowing down over the years because of the promotion of SHGs. Financial and social capital Micro finance through SHGs also helps in the promotion of micro enterprise in terms of assets building. It will help people to build human, financial and social capital for the development of micro business that will improve peoples wellbeing. SHG movement which which indicates that social problems, indirectly affects the balanced entrepreneurial problems, financial regional development issue problems and problems related to environmental support still persists in India and has not changed in last decades even the formulation and implementation of a lot of programmes.Another important problem of SHGs in the promotion of micro enterprise development in the country particularly in NER is the uneven growth of SHG movement which indirectly affects the balanced regional development issue. Assess and availability of has not only resulted in higher incomes of micro credit through SHGs women but also developed better leadership skills, awareness regarding health and education aspects, communication skills, and improved financial literacy among women in the North Eastern region of India. Gross loan portfolio Gross loan portfolio means the total amount of money lent by institutes to the customers. Above graphs. Clearly depicts that the loan portfolio of Indian MFIs is increasing tremendously year on year as compared to Bangladeshi MFIs. Leaders

(Sundari, and Geetha, 2000)

(Schreiner, 2004).

(Centre for Microfinance & Livelihood, 2009; Pati &Lyngdoh, 2011; Singh, 2009; Meetei, 2011; Singh, 2011; Das, 2011)

(Pati &Lyngdoh, 2011; Singh, 2009; Meetei, 2011)

10.

Active Clients

11.

Cost of Borrower

12.

Financial sustainability

13.

Yield on gross portfolio

14.

Return on equity

of MFIs in India has shown a high growth in respect of gross loan portfolio as SKS loan portfolio has grown by more than 800 times in just four year, Spandana loan portfolio rose to around Rs. 800 million from Rs. 100 million from 2006-09, similarly Shares loan portfolio has quadrupled from 100 to around 400 million in these year. These graph (Figure.3) reflect that the number of active clients of Bangladesh mfis is much higher than that of Indian mfis. Bangladeshi mfis are showing minuscule addition of clients, whereas clientele of Indian mfis are increasing at a very high speed. Because of such a high rate of growth of Indian mfis clientele, the gross loan portfolio is growing tremendously Cost per borrower ratio is very important as it helps to analyse the efficiency of mfis by determining the average cost of maintaining an active client. Graph below (figure-5) shows the Cost per borrower ratio of top three mfis in India and Bangladesh. It is clear that the cost per borrower of institutes in India is increasing, while it has shown downturn in 2009 in SKS and SHARE. Industry comparison shows that Indian mfis are showing steady growth in ROA, thus they are doing every possible effort to effectively use their assets. While Bangladesh mfis are undergoing declining ROA although it has increased in 2009 but still it is much lower when compared to Indian mfis as depicted. Yield on Portfolio ratio helps to determine the cost/income on the fund raised/distributed. In context of MFI it is calculated by dividing cash received from interest, fee and commission on loan by gross loan portfolio. Thus it gives the interest rate at which mfis are lending loans to people. Return on equity is another very significant ratio which helps to calculate the rate of return on average equity for a particular time period. In context of microfinance institutes ROE ratio is

15.

Concerns on Multiple Borrowing in Ramanagaram

16.

Sustainability

17.

Lack of capital

18.

Borrowings:

generally used as a proxy for commercial viability. Reported multiple lending by MFIs in Ramanagaram in Karnataka and raised concerns regarding a bubble in the Indian microfinance sector. This led to questions regarding whether the overstretched institutional capacities of Indian MFIs were resulting in the weakening of credit discipline and encouraging multiple borrowing by members. The first challenge relates to sustainability. It has been reported in literature that the MFI model is comparatively costlier in terms of delivery of financial services. An analysis of 36 leading MFIs1 by Jindal & Sharma shows that 89% MFIs sample were subsidy dependent and only 9 were able to cover more than 80% of their costs. This is partly explained by the fact that while the cost of supervision of credit is high, the loan volumes and loan size is low. It has also been commented that MFIs pass on the higher cost of credit to their clients who are interest insensitive for small loans but may not be so as loan sizes increase. The second area of concern for MFIs, which are on the growth path, is that they face a paucity of owned funds. This is a critical constraint in their being able to scale up. Many of the MFIs are socially oriented institutions and do not have adequate access to financial capital. As a result they have high debt equity ratios. Presently, there is no reliable mechanism in the country for meeting the equity requirements of MFIs. In comparison with earlier years, MFIs are now finding it relatively easier to raise loan funds from banks. This change came after the year 2000, when RBI allowed banks to lend to MFIs and treat such lending as part of their priority sectorfunding obligations. Private sector banks have since designed innovative products

Gokhale (2009) (Chen, Rasmussen and Reille, 2010).

such as the Bank Partnership Model to fund MFIs and have started viewing the sector as a good business proposition. 19. Capacity of MFI It is now recognised that widening and deepening the outreach of the poor through MFIs has both social and commercial dimensions. Since the sustainability of MFIs and their clients complement each other, it follows that building up the capacities of the MFIs and their primary stakeholders are pre-conditions for the successful delivery of flexible, client responsive and innovative microfinance services to the poor The demand for savings services is ever higher than for credit. Studies of rural households in various states in India show that the poor, particularly women, are looking for a way to save small amounts whenever they can. The irregularity of cash flows and the small amounts available for savings at one time, deter them from using formal channels such as banks. In terms of demand for micro-credit, there are three segments: At the very bottom in terms of income and assets, and most numerous, are those who are landless and are engaged in agricultural work on a seasonal basis, and manual labourers in forestry, mining, household industries, construction and transport. This segment requires, first and foremost,consumption credit during those months when they do not get labour work, and for contingencies such as illness. Michael Tenikue and Julie Sureda (2007)

20.

Demand for Savings and Insurance Services:

21.

Demand for Credit:

22.

23.

Sustainability such as repayment of loans, financial self sustainability or operational self sustainability and cost-control or efficient use of resources. Sustainability of microfinance This paper studies the various players in institutions the microfinance sector which range from not-for-profit organizations which work towards a developmental objective to commercial banks which view

Pankaj K Agarwal and S.K.Sinha (2010)5

24.

Gender Effect in Microfinance

25.

Financial Awareness and CustomersPerceptions

26.

Repayment frequency on loan

27.

Efficiency and outreach of micro financing schemes

28.

Offerings Made by MFIs

29.

Outreach

microfinance as a good source of deposits with sound banking and as a measure to reach their priority lending targets. Gender issue has always been very critical in Indian society whether it is in context of any social issues or economic issues. Still, women the world over suffer from various types of inequities and discriminatory practices, though they are considered to be better in thrift and credit utilization (NABARD, 1992). Various studies have shown that women are the better microfinance clients as compared to men. One of the major reasons for preferring informal sources of finance instead of the formal ones found to have been the lack of awareness about the micro financing services the effect of repayment frequency on loan default and delinquency. The general perception of the MF provider has been to use greater frequency of repayment i.e. through weekly installments to avoid default in repayment by maintaining the users habit to save regularly Default and delinquency. The general perception of the MF provider has been to use greater frequency of repayment i.e. through weekly installments to avoid default in repayment by maintaining the users habit to save regularly. It is important to note that the term microfinance has replaced microcredit in the last two decades as it truly reflects the all encompassing efforts to bank the poor. This change is due to an underlying shift in the financial inclusion outlook. There is widespread recognition that the poor require a basket of financial instruments like savings, insurance and asset transfers just like the non-poor. The outreach of SHG Bank Linkage, however, remains limited, reaching only about 12 million women and their households (in a country where 460 million people live on less than $/day). The outstandings of the SHG program in

Pitt, Khandker (1998)

Pandey (2008) (Tiwari, Khandelwal, Ramji 2008).

Field, Pande (2007)

llanto (1996)

(Collins, Morduch, Rutherford and Ruthven, 2009).

(Mahajan and Ramola, 2003).

30.

Overcoming geographic concentration in microfinance

31

Credit allocation,higher transction cost,high default rates

March 2003 were around Rs10 billion (US$217 million), thus catering to 2.2% to 6.6% of the estimated demand. Another issue of concern is that microfinance in India continues to be skewed in its geographical distribution. The underlying causes for this include the general malaise in the economy of the central, eastern and north eastern states, with very little resultant demand for credit among the subsistence poor, and the absence (for historical reasons) of good quality NGOs, that are willing to initiate microfinance programs in these states (there are a large number of small NGOs but all of them with limited experience and outreach) The microfinance sector is based on the concept that poor households are affected by lack of access to,and inadequate of provision of financial services.this attempt to reduce the rate of financial exclusion among the poor was seen as alternative solution for the failures in agriculture lending and rural credit assistance .

(Mahajan and Ramola, 2003).

(Arun et al.,2005)

. 32.

33.

Micro-finance has been hailed as a new age solution to alleviate poverty and bring economic prosperity to the rural economy. inadequate capital, delay in sanctioning of loan and inadequate understanding of market and market conditions

MFIs contribute to improving lives of the poor people but they have a long way to go.

Bhatt, S.K. and Jhaveri, H. (2008)

lack of orientation and initiative of bank staff to the concept and the needs of Self Help Groups

(Ramanunny 2005),

34.

access to credit

35.

Moral hazard or the hidden action problem

Actually brings the benefits to the poor. Early studies at the micro level have generally been able to trace a positive link between access to credit and economic development at the family level in terms of labour supply, schooling, household expenditure, and assets. The bank needs a signal from a third party to screen the good risks from the

Dichter and Harper (2007)

(Holmstrm, 1979).

36.

(1) gender equality, (2) poverty reduction, and (3) microbank efficiency

37.

The demand for microfinancial services

bad. Now suppose the loan is given. At this interim stage, the bank may be unable, or unwilling due to high cost of monitoring, to ensure that the Borrower exerts full effort to repay the loan. With respect to gender equality, microfinance is considered an effective means of promoting womens empowerment. By enabling women to develop or strengthen incomegenerating activities, microfinance is likely to increase their monetary income, their control over their income, and their bargaining power within the household. These effects are expected to lead to various mutually reinforcing social, psychological, and even political effects: better self-esteem and self-confidence, an improvement in status within the family and the community, better spatial mobility, and greater visibility of women in public spaces, and so forth The first step in any mapping of roles is to understand the Demand for micro-financial services. The potential demand in India is huge (see Chapter 2 for more details While banks have provided access to deposit facilities for large numbers of small depositors, total demand is far from being met, especially for more flexible micro-savings.
The total outreach of specialised providers of micro-financial services is estimated to fall well below 1 per cent of credit usage by poor households While banks have given a very large number of small loans, the proportion of rural credit usage supplied by the formal sector

(Mayoux, 2001).

Mahajan and Nagasri [1999]

38.

The supply of micro-financial services

(Mahajan and Nagasri, 1999)

stood at 56.6 per cent in 1991, and much lower for the poorest households. 39.

Developing the supply of micro-financial services

40.

Regulation of microfinancial services is often necessary

41.

Five challenges of organisation and capacity-building

Specialised MFOs alone cannot meet the total demand for micro-financial services in India. Instead, a three-track approach is required Regulation helps in long-term sustainability, even though MFOs may chafe under it in the initial years. The need for regulation and supervision of MFOs arises from several onsiderations like protecting the interests of small savers, ensuring proper terms of credit, instilling financial discipline and having a proper reporting and supervision system. A review for the Ford Foundation on the scale, scope and impact of community development finance in the United States and micro-finance in developing countries concluded The authors do not believe a shortage of capital is the biggest constraint facing the [community development finance] field. We suggest that while the growth of [community development finance organisations] has been solid, especially in developing countries, the field is not seeing the formation and maturation of as many [organisations] as are warranted by what has been Achieved.

(Mahajan and Nagasri, 1999)

(Fisher et al., 2001). As Mahajan and Nagasri (1999: 7) argue, regulation

(Miller and Andrews, 1998: 19):

42.

Microfinance in India
In India, microfinance is done by organizations having diverse orientations, Five significant issues that trigger the transformation

Of NGOs into MFOs.

Size:

The most significant issue that triggers a transformation is growth. This affects the promoters as well as the providers of microfinance.1 With organizations like MYRADA and SIFFS that promoted credit groups, banks were unwilling to provide loans at the pace at which Microfinance customers needed them.

Diversity:

Another trigger for transformation is the diversity of financial services That an MFO wants to offer. In most cases, NGOs start with Credit but soon realize the need to provide other support services. While MFOs have reduced their own lending risks through group guarantees and addressed the issue of willful default, they have not been able to grapple with the situation where the underlying economic activity fails and the borrower faces a Genuine problem.

43.

Sustainability

44.

Taxation

Sustainability is closely linked to growth. Beyond a certain level, MFOs have to seek external funds for keeping the credit activity going. When MFOs seek funds from financial institutions, issues Like ownership structure and capital adequacy become critical. For an MFO to survive in the long run, it has to transform itself into an institution with transparent systems and accountability. In most cases the promoters of MFOs do not have sufficient capital to invest and therefore the main constraint is that they are dealing with other peoples money. When an NGO carries out commercial activities (microfinance) on a large scale, it could lose its tax free status, and this might jeopardize other activities. Even

45.

Regulation in practice

grants may become taxable. This is a Major concern for NGO-MFOs. This also triggers a search for an alternative where microfinance could be kept isolated. Practical problems in the application of the regulation need to be resolved. These include problems in (i) determining the incomes of clients, (ii) applying the loan size limits, (iii) Defining productive purposes in the context of the fungibility of money.

Pricing issues

46.

Compliance cost

the interest and margin caps need to be reconsidered; while these do not pose significant problems for the larger MFIs in normal times, in a high interest rate regime (as now) the interest cap of 26% limits the margin available to unrealistically low levels resulting in MFIs making a loss. If there must be caps, let there be a margin cap but no interest cap. resulting from having to assess borrower incomes, enforce productive use of loans, check household indebtedness, apply KYC norms poses another threat to MFI viability Limit on borrower incomes: is there a way of assessing incomes accurately? Will need very detailed knowledge of borrowers family situation. What happens when borrowers move above the income limit and then back again on account of income variations? Do MFIs lend to them one year, not the next and then lend again in the third year.

Specific issues arising in the application of the regulation are

Loan size limit: borrowers can be provided Rs35,000 each in the first cycle but can borrow from two MFIs with the caveat that total debt should not exceed Rs50,000; meaning they can take Rs50,000 in loans with household annual income limited to Rs60,000 in rural areas? The debt service obligation of around Rs30,000 will not

leave them very much for their daily consumption. Limit on indebtedness: if there is more than one woman in a family and each of them is eligible for borrowing up to Rs50,000, what does that mean for family indebtedness in relation to the rural family income limit of Rs60,000. Even in urban areas, this provides for a lot of debt relative to the maximum family income of Rs1,20,000. The optimum amount of loan at the Rs60,000 income level may be just 25% of that amount (Rs15,000) whereas at Rs1.2 lakhs (in urban areas). Repayment frequency: the choice left to the borrower means that there could be weekly, fortnightly and monthly collections in the same village/urban area; this will result in additional work/increased cost of collection for MFIs. Monthly collection results in larger sums of money being carried by loan officers from meeting venues to the MFI office or to the bank; the security risk is greater. Loans for productive use only: how will this be addressed in relation to the fungibility of money? If part of a loan is used for consumption, what proportion of consumption is acceptable? Can productive lending be monitored at all is expenditure on education production or consumption? Are loans for sanitation and health productive or consumption? In any case repeated utilization checks will add considerably to the operating cost of MFIs. 47.

inadequate working capital,

Inadequate working capital, is the most serious problem restricting the performance of many DWCRA groups and also the group members need training for skill enhancement especially for items such as soft made garments, foot wear, woolen blankets etc.
Sinha and Sinha (2002) found in their performance analysis of Indian microfinance that Dependence on subsidies is high. (p. 279) They found that about 47% of the sampled

Ramalakshmi (1998)

48.

Dependence on subsidies is high.

Sinha and Sinha (2002)

49.

Efficient and dynamic development institution such as MFI is to create an environment in which these institutions may prosper without long-term dependence on external support itself

50.

lack of availability of working capital

51.

Extending access to Financial services to lowincome women.

organizations net worth is made up of donated equity. A more recent estimate by Micro-Credit Ratings International Limited (M-CRIL) (2007) shows a sharp decline in this percentage over recent years. The latter estimates that in 2003, 30% of microfinance funds were grants, 8% in 2005, and only 3.4% in 2007. Nevertheless, there was still a huge increase in institutional debt (34.4% in 2003, 62.2% in 2005, and 75.4% in 2007). As part of greater autonomy and responsibilities, besides adjusting the interest rates at commercial level, BRI also restructured its BRI unit desa. Many of lost making BRI unit desa were closed down, or transformed into secondary units which were open one day a week to serve less lucrative areas. It is apparently that they made the right decision in the right time especially if one observes the current success of BRI unit desa as one of internationally recognized successful model in microfinance. The decision to change BRI into fully commercial conform to views of many scholars in sustainable development. From an economic development policy perspective, access to credit is one of the main constraints in setting up of small and Medium-sized enterprises and lack of availability of working capital is one of the main reasons for business failure in the rural sector. holds that microfinance has done well in terms of extending access to Financial services to low-income women. This access extension however has been in terms of delivery of credit for mostly consumption purposes and very small production loans. Furthermore critical financial needs are yet to be satisfied

(Adams et al., 1983; Buss, 1999; The World Bank, 1997).

(Liedholm and Mead, 1999).

Arunachalam (2007)

52.

Poorest of the poor

53.

Possibility of earning profits while serving poor

54.

Integerating interst rate

55.

Mission drift in microfinance

56.

Interest rate policy

57.

Efficiency and productivity

58.

BorrowerTransaction Cost Credit Rationing and Segmented Market: A Study in the Rural Credit Market in Vietnam Transaction Costs of Lending to the Rural Poor- Non Governmental

59.

The effectiveness of Indian MFIs in fulfilling their outreach targets in the poorest of the poor classification of customers suggests that attitudes of staff and a range of organizational considerations detract from their understanding of market requirements, and hence their ability to provide different offers to the market to take account of variations in demand across customer segments. Found evidence of while serving the poor ,but a tradeoff emerges between profitability and serving poor ,but a trade off emerges between profitability and serving the poorest using data of the 124 MFIs in 49 countries. Integrating interest rate as a determinant of the sustainability while controlling for market structure direction, from an empirical standpoint. this essay investigates the role of financial and social efficiency in determining the interest rate policy of MFIs which directly affects the sustainability. Mission drift microfinance stress the importance of the inclusion of interest rates into the equation to investigate the mission drift phenomenon. The impact rate of policy of microfinance ,is an issue not addressed at length in the microfinance literature so far probably due to the data limitations The effect of subsidies on the efficiency of microfinance can be positive and negative. The arguments for negative impact on subsidies rest on the effects of soft budget constraints where donor funded bailouts of poorly performing MFIs reduce the incentive for cost cutting and hence decrease the efficiency. He concludes that the two factors, that is, regulated lending interest rate and the asymmetric information problem, are the causes of high borrower transaction costs of formal credit rationing and segmentation of rural credit market The average transaction cost of lending for the banks per account at 3.68 per cent of the loan amount, if the loan is

Wright,2000;

Cull et el.(2008)

Armendariz and szafaraz(2009)

Armendariz and szafarz(2009)

(Hudon and Trace ,2008)

Dewatripont and Maskin 1995;kornai et al .,2003) Dewatripont and Maskin ,1995;Kornai et al.,2003)

Dat Tran 11 (1998)

V. Puhazendhi 16 (1995)

Organisation and Self-help Groups of the Poor as Intermediaries for Banks in India

60.

High MFI transaction costs, in a large part driven by the cost of frequent payment collection

61.

Client delinquency is considered to be an important correlate of MFI loan default

62.

63.

Financial sustainability, liberalization of financial markets, and a high number of commerciallyoriented new entrants in the microfinance market, with benefits such as increased attention to changes in clients needs and expectations, and rapid adoption of new technologies. such as size, maturity and deposit-mobilizing activity may also result in differential competitiveness in the market for funders

given directly to the borrower. The intermediation of the NGOs and the SHGs help the banks to reduce this transaction cost to an extent ranging between 21 and 41 per cent. The dynamic nature of reduction in transaction costs, because of inter-mediation, affect a downward shift of the marginal cost curve. MFI interest rates high and limit their ability to scale up operations and reach new clients in more remote location. MFIs operating in comparable settings to save dramatically on the transaction costs of installment collection while facing virtually no added risk of default. It is often held that high MFI transaction costs, in a large part driven by the cost of frequent payment collection (Shankar 2006), keep MFI interest rates high and limit their ability to scale up operations and reach new clients in more remote locations. 1999), and for internal accounting purposes VWS considers any late payment as a measure of default. We, therefore, use group meeting data to examine the rate of late payments by clients over the course of the loan cycle With increased competition, the need for greater transparency as well as better organization and regulation of the market has emerged. In particular, potentially rising information asymmetries call for information sharing for instance with credit bureaus to limit uncertainty over indebtedness of final borrowers, especially those with multiple loans. Similarly, possible opportunistic behaviours and the risk of escalation of any conflicts MFIs are of different types too. The main dividing line is between those that are subject to supervision by the national financial authorities, and those that are not, mainly non-governmental organizations (NGOs). The former typically, though not always, enjoy greater financial solidity
findings suggest that a slight variation of the traditional micro-finance model could allow

(Shankar 2006), (Armendariz and Morduch 2004).

(Rosenberg 1999)

(Rhyne and Christen, 1999).

(Gonzalez 2010a).

64.

MFI interest rates high and limit their ability to scale up

(Armendariz and Morduch 2004).

operations and reach new clients in more remote location

65.

Client delinquency is considered to be an important correlate of MFI loan default.

66.

Critical Microfinance Triangle

67.

There are six aspects of measuring outreach: depth, worth of users, breadth, length and scope. Where, depth of outreach refers to the value the society attaches to the net gain from the use of the micro credit by a given borrower

MFIs to reach up to four times as many clients without hiring additional collection officers, and thereby significantly expand operations without incurring a loss. It is, however, important to note that this policy implication rests on the assumption that the risk composition of borrowers is not negatively influenced by a more flexible repayment Client delinquency is considered to be an important correlate of MFI loan default (Rosenberg 1999), and for internal accounting purposes VWS considers any late payment as a measure of default. We, therefore, use group meeting data to examine the rate of late payments by clients over the course of the loan cycle. how to evaluate the performance of microfinance institutions. Meyer (2002), indicated that there is what is called Critical Microfinance Triangle that we need to look at it to evaluate Micro-Finance institutions based on their objective. Here, the corners of the triangle represent outreach to the poor, financial sustainability and welfare impact. And Performance criteria are required for each objective and all three must be measured thoroughly to evaluate micro-finance performance, noted The microfinance institutions participation in several developing economies is escalating from time to time. and a donation by the Society to the clients as individuals was deposited with the MBTs. As private trusts, the MBTs were permitted to invest their funds in any way mandated by the members of the trust The Microfinance Promise (Morduch, 1999) builds on hopes that social and economic structures can be transformed by providing financial services to the poor.

(Rosenberg 1999),

Zeller and Mayer (2002), and Mayer (2002)

Meyer (2002). Navajas et al (2000),

68.

Microfinance (MF)1 has come to be considered the magic bullet for poverty alleviation

(Bateman, 2010; Consultative Group to Assist the Poor [CGAP], 2008; Stephens, 2009; World Bank, 2000).

69.

Social Capital

70.

Microfinance has very beneficial economic and social impacts

Social capital is based on the premise that an interpersonal network provides value to its members through access to the social resources available within the network. A recent study by Emma Svensson examines microfinance movement for economic growth by exploring the linkages of microfinance, the financial system and economic growth. He found some evidence of the microfinance clients engaging in growth enhancing economic activities.

(Bourdieu, 1986; Coleman, 1988).

(Holcombe, 1995; Hossain, 1988; Otero and Rhyne, 1994; Remenyi, 1991; Schuler, Hashemi and Riley, 1997).

71.

MFIs can provide or the greater flexibility shown by moneylenders.

72.

Indian microfinance has already taken its momentum and has emerged as the largest microfinance movement in the world with its perceptible impact especially after the second half of eighties.

MF has not yet occupied the centre stage in the Indian financial sector. People still go to moneylenders. This may be due to the need for more credit than the MFIs can provide or the greater flexibility shown by moneylenders It also needs to clarify that the term mF has been understood and defined differently by different people. More often than not, mF is defined in a limited sense of micro credit for micro enterprises.

(Ghate 2007).

(Firoze and Bhattacharya 2007: 2071).

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Sarita Vichore,(2012).The Indian Microfinance Predicament-Evidence in Literature and Practice the international journal of social science & management ISSN:2251-1571 URL:http://www.theiinternationaljornal.org/ojs/index.php?journal=tij&page=article&op=view&p ath[]=717&path[]=pdf

Hussain1 Bhat Arshad * Aasif Hussain1 Nengroo (2011) .Mollifying Poverty through Microfinance Indian Perspective Information and knowledge management ISSN 22245758 (Paper) ISSN 2224-896X (Online)Vol.1, No.4, 2011 URL:www.iiste.org

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