A PPT ON MICRO FINANCE BY :- GAURAV BHUT

A PPT ON MICRO FINANCE BY :- GAURAV BHUT

• 1.
  Micro Finance inIndia 1 A PRESENTATION ON
• 2.
  Microfinance: what isit? 2
• 3.
  Microfinance: what isit?  Micro-credit  Group lending  Social/charitable activity 3 • Range of financial services • Group and individual lending • Profitable activity What it often is What it really should be
• 4.
  Providing financial servicesto the poor: . challenges 4
• 5.
  Providing financial servicesto the poor: challenges  Risk management challenges due to information asymmetry problems  Accessibility (geographic accessibility and easiness to deal with)  No collateral, Low value and cash intensive nature of the business  Staff training and motivation 5 High transaction costs
• 6.
  Information asymmetry 6 Decision totake loan Loan usage loan repayment Adverse selection Moral hazard
• 7.
  Adverse selection: incomplete informationproblem (before the loan) Don’t know Client’s type Interest rate reflects proba of default Safer clients drop out Need to increase interest rate Providing credit can become impossible
• 8.
  Moral hazard: hiddenaction problem (after loan) 8 Can not observe what client is doing Bad loan usage Strategic unwillingness To repay
• 9.
  Clients profile  75%population lives in rural areas: geographical access difficult  Informal activities: need access at flexible times  Illiteracy: difficult to deal with traditional services  Low value of transactions  Lack of collateral 9
• 10.
  Staff  Lack oftrained staff  Lack of motivated staff  Difficult to incentives staff 10
• 11.
  Delivering financial servicesto the poor in India: an overview
• 12.
  Providing financial servicesto the poor: occupied India Deccan, late 19th Century: peasant riots on account of coercive alienation of land by moneylenders. 12 Organization of cooperative societies as alternative institutions for providing crédit by british government
• 13.
  Results  Access interms of rural branches increased from 1,833 in 1969 to around 32,538 at present: 49% of all scheduled commercial bank branches are rural  The population per rural branch declined from 2,01,854 in 1969 to around 16,000 at present.  The proportion of borrowings of rural households from institutional sources increased from 7 per cent in 1951 to more than 60 per cent at present. 13
• 14.
  Results (cont’d)  31%(131.1 million) of the total deposit accounts are in rural India  43%(22.4 million) of total credit accounts are in rural India  Positive impact on the poor (Rohini Pande/Burgess paper) 14
• 15.
  Micro Finance: apparition The financial sector reforms motivated policy planners to search for products and strategies for delivering financial services to the poor – microFinance - in a sustainable manner consistent with high repayment rates.  NABARD: empirical observation that had been catalysed by NGOs that poors gather in informal groups  Create a formal interface of these informal arrangements of the poor with the banking system.  Bank-SHG Linkage Programme.  Recent emergence of MFIs: professionally run institutions specialiazed in delivering credit with low cost staff and local knowledge 15
• 16.
  Despite all theseefforts…large gaps remain  Against rural population of 741.0 million, 500 million people un-served  Population per branch: 22,793  Penetration of savings accounts is below 18%  As against 104% in urban and semi-urban areas  Number of villages per branch: 19  High dependence on informal sources ◦ 36% of rural credit from informal sources ◦ Dependence even higher for lower income households: 78% 16
• 17.
  Microfinance ahead: challenges 17
• 18.
  Gaps in demandand supply 1 Demand: Rs. 450 billion/y 60% in South…to cover all parts of India Less than 2 million Households reached 500 million un-served poor Disbursed: 39 billion Need employment opportunities Need protection against all risks Market constraints Insurance under-delivered Scaling up Increase impact
• 19.
  Technology Role of technologyin microfinance:  MIS  Cash handling  Data capture and subsequent management 19
• 20.
  Range of Microfinancial services: Health insurance ◦ Reimbursement model ◦ Cashless model ◦ How to identify illness? ◦ How to avoid fraud?  Livestock insurance ◦ Recognize cause of death ◦ Identify animal (role of technology) 20
• 21.
  Range of Microfinancialservices:  Weather insurance  Index-based: index created by assigning weights to critical time periods  Past weather data mapped to this index to arrive at normal treshhold index  If deviation: compensation  Commodity price derivatives  NCDEX: offers price discovery services: offer farmers instruments to hedge pre and post harvest risks  Makes using commodity as collateral possible 21
• 22.
  Range of Microfinancialservices:  Savings and investments products ◦ Could be offered through Money Market Mutual Fund: MFI acts as agent  Remittances ◦ 10 million seasonal and circular migrants (National Commission on Rural Labour) ◦ Adhikar, Orissa ◦ ICICI: remittance product through internet kiosks 22