MICRO FINANCE

By
C. Kasirajan
Advisor Faculty
 Micro Finance
• Small finance to poor Rs.50000 per borrower
• Annual house hold income not exceeding
Rs.60000 in rural, 120,000 in non rural areas
• Directly to individuals or through SHG/ JLG
• Income generation or consumption
• If for agriculture, SME, classify accordingly
• If no income generation, under others- PS
SELF HELP GROUP (SHG) CONCEPT
• Homogenous group of maximum 20, mostly by
women (Men can also form)
• Voluntary thrift on regular basis
• Pooled resources interest bearing loans to
members
• Imbibes in them savings, financial intermediation,
own terms and conditions, keeping accounts,
financial discipline, credit history
• Their own hard earned money, peer pressure
• Credit Monitoring easier, organised group
 SHG – Bank Linkage
SHG accessing Bank loans to improve the resource and activities
1.Formation of SHG – role of NGO
2.Thrift (savings by members)
3.Opening savings account in Banks
4.Lending within group
5.Bank loan to augment funds
6.Taking up profitable group activities
7.Repaying bank loan, credit cycle maintained
 LINKAGE PROGRAMME
• SHG registered/ un registered
• Direct linkage and bulk on lending through Voluntary
Agencies/ NGOs/ MFI
• 10 to 20 members, with homogenous back round
• Existence for at least 6 months, successful savings and
credit operation
• Participative group, periodical meeting, records like
minute book, savings/ credit register etc. maintained
• Sponsoring VA/ NGO good past record of working with
weaker section, proper system, book keeping, records
 SHG – Panchasutra norm
• SHG satisfactory existence for 6 months,
panchasutra norm
Regular meeting
Regular savings
Regular internal lending
Regular recoveries
Maintenance of proper books of accounts
NABARD grading norm for group and NGO
 QUANTUM OF FINANCE
• FIRST DOSE
• SHG with regular SB a/c for 6 months at least
• Regular loan: 4 times of savings/ corpus or Rs.75,000
whichever is higher
• Debt Swapping: 50% of regular loan or debt
whichever lower
• Addl. Housing loan: Rs.20,000 per member max one
lakh per SHG
• Overall limit Rs2.25 lakhs maximum
 2 DOSE
nd

• Promptly repaid first dose, minimum 12

months from date of availing 1st dose
• Regular loan: 10 times of savings/ corpus or 2
lakhs whichever high
• Debt swap: 50% of loan or actual debt
whichever lower
• Housing loan: 20000 per member of max Rs.
one lakh per group
• Overall limit Rs 4.0 lakhs maximum
 3 DOSE
rd

• Twice loan promptly repaid, 18 months from

second dose
• As per Micro credit plan- individual loan
requirement (investment credit + 10% for
consumption, health, edu, marriage)
• Debt swapping: 40% of loan or actual debt
whichever lower
• Housing loan: 20000 per borrower, max Rs.one
lakh per group
• Overall limit Rs 5.0 lakhs maximum
 Revolving Credit
• At 3rd stage, 50% of regular component as
revolving credit, as clean cash credit limit
• Both TL and revolving credit to be closed
within 36 months
4th DOSE
same as 3rd dose, over all maximum Rs.7.5 lakhs
• Above quantum for group of 20, if less in
number, proportionately reduced
 Reasons for Dormancy of SHG
• Lack of affinity/ homogenity among memers
• Domination of a few member(s), others inactive
• Non rotation of leadership
• Conflict within the group
• Lack of managerial capacity
• Non bank linkage
• Inadequate hand holding by NGO/ SHPI
• Close of SHPI Project/ withdrawal from the area
 Reasons for Dormancy of SHG
• Dropping out of members due to migration, ill
health, marriage
• Irregular/no meeting
• Low attendance
• No regular savings
• Non repayment of dues from members
• Embezzlement by members/ leader
 Steps for Revival
• Find out reason for dormancy
• Conflict resolution/ capacity building/ training/
counselling
• Engage SHPI/ quality NGO/ BC/ BF
• Ensure linkage, renew the limit
• Success depends on stability of intermediary and
their continuous engagement with SHG
• Leverage NRLM
• Nabard revival grant Rs.3000/ group
 JOINT LIABILITY GROUP
(Master cir ADV/63/14-15 dt 16.12.14)
• 5 Lakhs JLG groups to be financed in current
Financial Year, as announced in the Budget
• SF/ MF, “Bhoomiheen Kisan” land less farmers
• To finance Agriculture, Allied activities, non farm
activities, artisans
• Group guarantee substitute for collateral
• Group approach, cluster approach, peer
education, peer pressure
• Training and improved monitoring,
• Groups aggregate into producers’ group
 JOINT LIABILITY GROUPS (JLG)
• Tenant farmers as oral lessee or share croppers,
SF/ MF without title deeds, collateral free loan
• Group of 4 to 10, engaged in similar type of
activities like farming/ dairy etc avail loan under
joint undertaking and mutual guarantee
• Promoted by Branch, VA, NGO, Farmers’ club,
Agri Department, JLPI – they provide training,
extension, support services
• Incentive for JLG promotion by NABARD Rs.3000/
 Selection Criteria for JLG
• Members of similar economic, social status,
background, like mind, carrying out farming
• Residing in same village/ area, known well, trust
with each other, not of same family
• Engaged in agri at least for past one year
• Members not defaulters
• A good able active leader is essential
• Savings by JLG is only voluntary, not linked to loan
• JLG Rating chart Min 60%
 CREDIT LINKAGE
• A. Financing individual member:
JLG prepares credit plan for individual member
and aggregate total requirement
Branch appraises, assesses individual loan
amount based on crop/ purpose and area
Individual debt liability, guaranteed by others
Inter se agreement, making each jointly and
severally liable
 B. Financing the Group
• The group of 4 to 10 as one borrowing unit
• One loan for combined requirement of group
• All members jointly execute one document,
liability jointly and severally (SHG document)
• If group wants savings, groups’ SB a/c may be
opened, but quantum of credit not linked to
savings
 JLG other details
• Purpose: crop production, marketing, other allied
activities. Consumption also included
• CC, TL, short term demand loan as per purpose
• Maximum Rs. 50,000 per individual, under both
models
• No collateral, only mutual guarantee
• All farmers may be covered under personal
accident insurance, but crop insurance is must.
Panchayat Level Federations (PLFs)
(for on lending to SHGs, only for Tamil Nadu)
• Registered society of all SHG functioning in a
panchayat, promoted/ maintained by member
SHGs, for their common goal
• At least 10 SHG members
• Byelaws should mention about borrow. Power
• All SHG members constitute general body
• EC of PLF at least 11 members, who elect
President, Secretary, Jt.secretary and treasurer
 Eligibility for our Finance
• PLF recognised by Tamilnadu Corporation for
Development of women/ TN Vazhnthu
Kaattuvom Project
• PLF and SHG in existence for >6 months, with
75% of ‘A’ rated SHG, min members 10 to 20
• SHG having a/c with our Bank
 Credit limit Assessment
• No. of groups more than 6 months not availed
limit or adjusted the loan
• First Limit per group as per SHG lending norm,
Thereafter as per their Micro credit plan
• Disbursed as one or more term loans
• Max limit per PLF Rs.25 lakhs as term loan(s),
for each member not exceeding Rs.50,000
• At the time of withdrawal PLF should furnish
investment plan, corpus fund, grading chart, loan
amount for each group
 Other Details
• Purpose of Agri, Allied activities, consumption
classified as Agriculture, others as Micro credit
• ROI BR + 2.25%, rate charged by PLF to SHG
not exceeding 2%
• Repayment monthly in 3 to 5 years
• Disbursement in SB a/c of PLF, same day PLF
SB a/c to all SHG SB a/cs with us
• Processing charges upfront 1%
 MICRO FINANCE INSTITUTION (MFI)
• An organisation engaged in extending micro
finance, can be
• A society, under society Registration act
• A Trust under Indian Trust act
• A company under section 25 or other profit
making companies
• A co operative society (state or central)
• An NBFC, not accepting deposits
• Eg.SKS microfinance, Bandhan, Spandana, Equifax
etc
 Loans to MFI for on lending
Eligibility criteria for PS classification
• 85% of total assets of the MFI, are Qualifying assets*,

• 75% of total advances extended to income generating

activity
* Definition of Qualifying assets:
- household annual income Rs.60000 (rural), Rs.120,000 (others)
- Loan does not exceed Rs.35000 in first dose and Rs.50000 in second dose
- Loan and Total indebtedness per borrower not to exceed Rs.50,000/
- Tenure of loan not> 24 months with right to prepay
- Term loan is without collateral
- Loan repayable by weekly, fortnightly, monthly installment
 Other conditions
Interest and Pricing
- Margin cap 12% (diff between int income and int paid)
- Interest cap individual loan 26% per annum
- No Deposit as security/ no margin
- No penalty for delayed payment.
- Actual cost of insurance of borrower/ asset to be charged

• Personal guarantee of promoters should be taken

• No Exploitation of poor by MFI
 RISK FACTORS
• Benami transaction
• Inefficient VA/ NGO
• NGO also finance
• Multiple finance by other agencies/ banks
• Lack of financial literacy
• Political intervention
• Social problems eg. SKS microfinance in A.P
GOVERNMENT SPONSORED
SCHEMES
 Swarna Jeyanthi Gram Swarozgar
Yojna
(SGSY)
• Implemented by DRDA
• To bring BPL family above poverty line
• BPL census identifies BPL family
• Swarozkari identified by BDO, Bank, Sarpanch
• Individual or group
• 50% SC/ST, 40% women, disabled 3%
• Farm activities dug/bore/tube well, lift irrigation,
check dam & non farm activity ISB
• Unit cost (project cost) by NABARD
 SGSY
• Composite loans, loan + subsidy=Project Cost
• Swarozgari has full freedom to procure asset
• ISB loans up to 10000/ cash disbursement
• 30% of project cost or Rs.7500/ maximum
• SC/ST 50% or 10000 maximum
• Group 50%, per capita 10000 or 12.5 L Max
• No monetary ceiling for irrigation project
• Subsidy reserve fund a/c adjusted after 5 years
 SGSY Revolving Fund
• SHG in stages – Formation, stabilisation, Micro
Credit, Micro enterprises
• Eligible after 6 monnths as enters 3rd stage
• Subsidy equal to group corpus, Rs.10,000 max
• To reach 4th stage subsidy 20000
• Subsidy + bank loan used as cash credit
• Swarozgari Covered under insurance up to
asset value
 SGSY
• Security: Individual loan one lakh, group ten
lakhs no collateral security
• Repay: as fixed by NABARD 5,7,9 years with
lock in period 3,4,5 years
• Subsidy back ended, if loan repaid before
currency period only pro rata subsidy
• Processing fee 0.5% repayable on prompt
repayment
SWARNA JEYANTHI SHAHARI ROZGAR
YOJNA (SJSRY)
• Urban self employment programme: urban
poor living BPL, residing in the town for at
least 3 years, not a defaulter
• Max project cost 200,000/ margin 5%
• 25% of project cost or Rs.50000/ max
• No collateral
• Repayment 3 to 7 years after 6 – 18 m holiday
 SJSRY
• Urban Women Self Help Programme:
• Group of min 5 women, not a defaulter
• Project cost no ceiling
• margin 5%
• Subsidy 35% or Rs.60,000/member max
300,000/=
• No collateral
• Repayment: 3 to 7 years, holiday 6 to 18 months