Micro finance

Micro finance

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  MICRO FINANCE
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  • Microfinance isdefined as any activity that includes the provision of financial services such as credit, savings, and insurance to low income individuals which fall just above the nationally defined poverty line, and poor individuals which fall below that poverty line, with the goal of creating social value.
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  • According toInternational Labor Organization (ILO), “Microfinance is an economic development approach that involves providing financial services through institutions to low income clients”. • In India, Microfinance has been defined by “The National Microfinance Taskforce, 1999” as “provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards”.
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  The modern useof the expression "micro-financing" has roots in the 1970s when Dr. Muhammad Yunus started Grameen Bank in Bangladesh
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  MICRO FINANCE ANDMICRO CREDIT Micro finance refers to loans, savings, insurance, transfer services and other financial products targeted at low-income clients. Micro credit refers to a small loan to a client made by a bank or other institution. Micro credit can be offered, often without collateral, to an individual or through group lending.
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  Types of MFIs •MFIs include non-governmental organizations (NGOs), credit unions, non-bank financial intermediaries, and even a few commercial banks. • Classification: • Not for Profit MFIs • NGO-MF • Non-Profit Companies • Mutual Benefit MFIs • Mutually Aided Cooperative Societies (MACS) and set up institutions. • For Profit MFIs • Non-Banking Financial Companies ( NBFCs)
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  Who are theclients of micro finance? • Low-income persons that do not have access to formal financial institutions • Micro finance clients are typically self employed, often household based entrepreneurs • In rural areas, they are usually small farmers and others who are engaged in small income- generating activities such as food processing and petty trade • In urban areas, micro finance activities are more diverse and include shopkeepers, service providers, artisans, street vendors
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  Characteristics • Loan givenwithout security • Loans to those people who live below the poverty line • Members of SHGs may benefit from micro finance • Maximum limit of loan under micro finance ₨25,000/- • Terms and conditions offered to poor people are decided by NGOs • Microfinance is different from Microcredit- under the latter, small loans are given to the borrower but under microfinance alongside many other financial services including savings accounts and insurance. Therefore, microfinance has a wider concept than microcredit.
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  The Need inIndia • ·India is said to be the home of one third of the world’s poor; official estimates range from 26 to 50 percent of the more than one billion population. • About 87 percent of the poorest households do not have access to credit.
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  How to ApplyMicro Loans • Prospective borrowers are required to submit basic information requirements (e.g. bio-data, business papers, financial statements, collateral offered, usage of loan) • Credit & background checking • Collaterals offered (if applicable) are appraised to determine loan able value • Other pertinent information are gathered about the borrower • If eligible, credit evaluation report is made for approval
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  Strength • Reliable businessmodel. • Reduces poverty • Attract investors looking to spread risks and diversify their portfolios. • Focus on consumer protection, transparency, and governance • Strong support from banks & NGOs who are able to access bulk funds for on-lending. • Huge networking available. • SHG bank linkages- widely adopted approach involving bank, NGOs & poor
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  Weaknesses • Not properlyregulated. • High interest rate than the rates charged on normal bank loans. • High transaction cost • Large segment is still untouched due to access problem. • Many poor still prefers informal providers (local Zamindars, Chit Funds) of finance which charge at a high interest rate. • Many places in States such as Uttar Pradesh, Bihar and Madhya Pradesh are under-served. • Loan fatigue- poor recovery
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  Opportunities • Rate ceilingsfrom Govt. • Huge demand and supply gap • Huge potential & heavy need for this market. • Participation of private industries and institutions. • Inclusion of innovative models and initiative • • Employment Opportunity • Opportunity for Pvt. Banks • Government should encourage competition, capacity building, and innovation to lower interest rates, and costs in microfinance.
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  Threats • Global financialstorm • Uncertain regulatory future due to the underlined concerns.  High Competition policies and procedures of central bank which might pose hurdles to poor people  Risks to MFIs – Credit risk, Operational risk, strategic risk, liquidity risk, market risk, fraud and legal risks, reputation risk  Over involvement of Government
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  THANK YOU