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Micro Finance with statistics
Microfinance refers to small-scale financial services like credit and deposits provided to low-income individuals who lack access to traditional banking services. It aims to help the poor become self-sufficient through saving, borrowing, and insurance. Traditional banks are reluctant to serve the poor due to high costs of small loans and lack of collateral. As a result, the poor rely on expensive money lenders. Microfinance helps address this need by providing affordable credit and financial services to the poor. It helps increase incomes, smooth cash flows, manage risks, support micro-enterprises, and empower women. Common microfinance models include self-help groups, community banking, and non-profit organizations. Features include group lending, minimal collateral, and gradually
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Micro Finance with statistics
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- 2. What is Microfinance? According to famous economist Robinson, Microfinance refers to small-scale financial services for both credits and deposits - that are provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services . Ultimately, the goal of microfinance is to give low income people an opportunity to become selfsufficient by providing a means of saving money, borrowing money and insurance.
- 3. What is theneed of Microfinance ? Traditionally , Macro-financial institutes like banks have been reluctant to provide financial services to clients with little or no cash income, because of various reasons – 1. ‘Break Even Point‘ in providing loans. 2. Few assets to be secured as collateral.
- 4. What is theneed of Microfinance ? Lack of loan and other financial services from banks and other institutes forces them to rely heavily on relatives or local money lenders at the time of need . Usually interest rate of moneylenders are very high . They are often accused of Usury .
- 5. What is theneed of Microfinance ? According to a 1995 World Bank estimate, in most developing countries the formal financial system reaches only the top 25% of the economically active population - the bottom 75% have no access to financial services apart from moneylenders .
- 6. How Microfinance helpsthe poor ? 1:It provides a long-term increase in income and consumption of poor families. 2: Access to credit helps the poor to smooth cash flows and avoid periods where access to food, clothing, shelter, or education is lost. 3: Credit make it easier to manage shocks like sickness of a wage earner, theft, or natural disasters.
- 7. How Microfinance helpsthe poor ? 4: It provides support to Micro Enterprises . Thus booster support to Entrepreneurship among the jobless people . 5: Plays an important role in Women Empowerment , particularly in Developing countries like India.
- 8. middle of the1800s Theorist Lysander Spooner wrote about small credits , as a way of getting the people out of poverty . End of World War II Marshall Plan was introduced for revival of post war economy . It gave emphasize on micro finance . 1970’s Micro-Credit movement started in countries like Bangladesh ( Grameen Bank led by Muhammad Yunus) , Pakistan , Vietnam etc. 2005 Declared as International year of Microcredit by The Economic and Social Council of the United Nations
- 9. Microfinance Lending Models 1:Associations , Ex : Self Help Groups, SHGs (India) 2: Bank Guarantees , Ex : Latin America Bridge Fund 3: Community Banking , Ex: Grameen Bank (Ban.) 4: Cooperatives , Ex: Co-operative Bank (England) 5: Credit Unions 6: Non-Governmental Organizations , Ex: KIVA ,US 7: For-profit Banks , Ex: Khushali Bank (Pakistan) 8: Rotating Savings and Credit Associations (ROSCAs)
- 10. Major Features ofMFI’s Most of the major MFI’s (like SHGs , Community banks ) follows certain methods ( developed over last 30 years ) to deliver very small loans to unsalaried or poor borrowers.
- 11. Major Features ofMFI’s These include – 1. Negligible Amount of Collateral required. 2. Group lending and liability. 3. Pre-loan savings requirements. 4. Gradually increasing loan sizes & guarantee of ready access to future loans if present loans are repaid fully and promptly.
- 12. Major Features ofMFI’s Usually High Interest rates are charged by the MFI’s for the following reasons : 1: The administrative cost of making tiny loans is much higher in percentage terms than the cost of making a large loan. 2: More Risk factor is involved in Microcredit than mainstream banking .
- 13. Microfinance in India MajorMicrofinance activities followed in India are – 1. Micro credits 2. Micro savings 3. Small scale Insurance
- 14. Role of NGOSin the microfinance >What are NGOs? >NGOs are voluntary social work organization who renders help to government and society for improvement of quality of life people >Help in the formation of SHGs >To reduce the smaller transaction NGOs help banks >Over the last quarter century, a few organizations, outside the purview of the public sector, have succeeded in effective poverty alleviation through micro-credit >Main objective is to draw attention about microfinance by conduction meetings in rural areas
- 15. Role of NGOSin the microfinance > Providing the minimum knowledge related to the finance > Helping people to improve their skills in education > Making contact between the SHGs and banks > How banks are benefited by NGOs???
- 16. Role of govtin microfinance > Government interested in SHGs > Rashtriya Mahila Kosh , Indira Mahila Yojana, Swarnajayanti Gram Swarojgar Yojana (SGSY) launched in 1999 > Swarnjayanti Gram Swarojgar Yojana (SGSY) has emerged as a main antipoverty programme
- 17. Working of SHG Howit works?? > Formation of group with (10-20) members > Monthly savings about 20-50 rs per each member > Money lending from banks > Money lending from SHG > Interest rates > Repayment of money
- 18. In Andhra Pradesh >Initiative taken by govt of A.P to enhance the profit of shg members > Loans are at 2.5 % interest > Achieved great response from poor > Presently there are 1.15 lakh DWCRA groups and 2.19 lakh SHG groups in Andhra Pradesh with a membership of 46 lakh women having a savings of Rs.300 crores.
- 19. In Orissa > Itis the state that have only microfinance as tool eliminate the poor. > In Orissa Mission shakti , a government driven programme, formed in 2001 with a target to organize 2 lakhs WSHGs(women self help group) covering all revenue villages of the State. The main aim is to provide supports to different stakeholders working in the field of women empowerment such as Banks, NGOs, MFIs and other institutions.
- 20. In Orissa > In2008 IDBI Fortis Life Insurance has tied up with Regional Rural Development Centre (RRDC) to offer rural consumers the protection of Termsurance Grameen Suraksha in Orissa. .
- 21. In Orissa > Thereare around 35 MFIs registered in the state out of which 8-10 are functional, with the recovery rate of these institutions being around 95%.. >Micro-Finance Institutions (MFIs) operating in Orissa have advanced loans worth Rs 1500 crore in the past three to four years, reaching out to more than two million customers in the state.
- 22. Disadvantages & Criticismsof Microfinance Disadvantages to the Micro-lenders: 1. To the bank the borrowers are few for the problem of reaching out to the people. 2. A main disadvantage to micro-finance is that the deal is too small for the lender to devote ample time and money to doing proper due diligence.
- 23. Disadvantages & Criticismsof Microfinance 3.As the capital is low the profits are also low. 4 .Borrowers seldom if ever give lenders the full story on their situation and with a small amount at risk, it does not make sense for lenders to spend a lot of money to check out the story. When lenders get burned, they decide to stop lending and the next round of lending must be done by greenhorns who have no idea what they are getting into.
- 24. Disadvantages & Criticismsof Microfinance 5.In other words, to some extent microlending depends on an ever-increasing number of lenders in order to be successful
- 25. Disadvantages & Criticismsof Microfinance 6.The inability to reach the poorest of the poor is a problem that plagues most poverty alleviation programs. As Gresham’s law reminds us, if the poor and non-poor are combined within a single program, the non-poor will always drive out the poor. To be effective, the delivery system must be designed and operated exclusively for the poor.
- 26. Disadvantages & Criticismsof Microfinance 7.Some criticize that microfinance programs benefit the moderately poor more than the destitute, and thus impact can vary by income group. 8. Most microfinance programs target women (due to higher repayment rates), which may result in men requiring wife to get loans for them.
- 27. Disadvantages & Criticismsof Microfinance 9.Vicious cycle of debt, microcredit dependency, increased workloads, and domestic violence associated with participation in microfinance programs. 10. Low repayment rates in comparison with traditional financial institutions. 11. Use of harsh and coercive methods to push for repayment and excessive interest rates
- 28. Disadvantages & Criticismsof Microfinance 12.Concerns have been raised that the reliance on microfinance programs to aid the poor may result in a reduction of government and charitable assistance (“privatization of public safety‐net programs”).
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