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ROLL NO: 1045


PROF. (Mrs.)






This is to certify that Miss/Mr. JUHI SINGH Of B.Com Banking and Insurance

Semester V (2015-16) has successfully completed the project on MICROFINANCE

IN INDIA WITH SKS under the guidance of Prof. (Mrs.) .


Dr. Usha Mukundan Seal of the College

Project Guide / Internal Examiner

Prof. (Mrs.):


External Examiner




I,JUHI SINGH of the student of B.Com (Banking & Insurance) Sem. V (2015-16)

hereby declare that have completed the project on MICROFINANCE IN INDIA


The information submitted is true and original to the best of my knowledge.

Signature of Student

Name of the Student:


Roll No. :1045


I would like to express my sincere gratitude to the Almighty for having showered his
immense blessing on me and has enabled to complete this research work.

I would also like express my heartfelt gratitude to our Principal Dr. Usha Mukundan,
who has given me opportunity to conduct this study.

My guide also deserves sincere thanks that she has given me her guidance throughout
the project and made it a success.

My parents have been a backbone to me in completing this Project and my friends who
extended their constant support during my study also deserve heartfelt thanks.














10 SKS(Swayam krishi sangam)





To most, microfinance means providing poor families with very small loans
(microcredit) to help them engage in productive activities to grow their tiny
businesses. Over a period of time, microfinance has come to include a broader
range of services (credit, savings, insurance and others) as it has been realised
that the poor, who lack access to traditional formal financial institutions require a
variety of financial products. Microfinance started with the recognition that poor
people had the capability to lift themselves out of poverty if they had access to
affordable loans. High repayment rates in the industry have changed the
perception that the poor are not credit worthy. With the right opportunities, the poor
have proved themselves to be productive and capable of borrowing, saving and
repaying, even without collateral. Find out more about microfinance in this

Bibi Hanifa is a successful micro entrepreneur from Hubli who has set up an incense-stick
unit along with a group of women in her neighbourhood. Earlier they worked as
daily wage labour at a nearby factory and earned a meager income. Today,
thanks to the simple system of taking loans and repaying them, these women
manage a successful enterprise and dream of a better and more prosperous
tomorrow. Microcredit or Microfinance is the process of granting small loans to
poor people, primarily to women, who have no collateral and are marginalised.
These women tend to use their income to benefit their households and children.
The process is accomplished through a microfinance institution that

recruits and trains responsible, appropriate borrowers, each of whom

establishes her small business

helps them form groups that are accountable for each other's loans

distributes funds for loans

meets with groups of borrowers to collect loan repayments and to guide their end

Examples of enterprises established include, buying a buffalo to sell its milk;

starting a kirana store; manufacturing sweets; selling soft drinks; grinding
spices; sewing; candle making; collecting fallen hair for wigs and extensions;
repairing watches; tea or petty shops; vegetable stands; bicycle repair.

Microfinance institutions broadly operate under a wide range of legal structures.

They could be registered as NGO, Trusts, Sec 25 Companies, Cooperative
Societies, Cooperative Banks, Regional Rural Banks, Local Area Banks, Public
and Private Sector banks, Business Correspondents and Non-Banking Finance

1.2 History of microfinance
The history of microfinance can be traced back as long to the middle of the 1800swhen
the theorist Lysander Spooner was writing over the benefits from small credits to
entrepreneurs and farmers as a way getting the people out of poverty. But it was at the
end of World War II with the Marshall plan the concept had an big impact.

The today use of the expression micro financing has it roots in the 1970s when
organizations, such as Grameen Bank of Bangladesh with the microfinance pioneer
Mohammad Yunus, where starting and shaping the modern industry of micro financing.
Another pioneer in this sector is Akhtar Hameed Khan. At that time a new wave of
microfinance initiatives introduced many new innovations into the sector. Many
pioneering enterprises began experimenting with loaning to the underserved people.
The main reason why microfinance is dated to the 1970sis that the programs could
show that people can be relied on to repay their loans and that its possible to provide
financial services to poor people through market based enterprises without subsidy.
Shore Bank was the first microfinance and community development bank founded in
1974 in Chicago.

From modest origins, the microfinance sector has grown at a steady pace. Now in a
strong endorsement of microfinance, the National Bank for Agriculture and
R u r a l D e v e l o p m e n t ( N A B A R D ) a n d S ma l l I n d u s t r i e s D e v e l o p m e n t
B a n k o f India (SIDBI) have committed themselves to developing microfinance. The
microfinance sector has been "witnessing a tremendous growth" during the last few
years in India in terms of loan portfolio, geographical area and outreach. With Indias
GDP growing at the rate of 7.1 % the countrys socio-economic p y r a mi d i s
t u r n i n g ar o u n d t h e s t o r y w i t h mi l l i o n s o f p o o r p e o p l e b e c o m i n g

2 WHAT IS Microfinance
Microfinance refers to an array of financial services, including loans, savings
and insurance, available to poor entrepreneurs and small business owners who
have no collateral and wouldn't otherwise qualify for a standard bank loan. Most
often, microloans are given to those living in still-developing countries who are
working in a variety of different trades, including carpentry, fishing and

Microloans typically are not more than several hundred dollars. Examples of
uses include money for tools to start work in construction, or makeup and other
supplies needed to become a cosmetologist. Because they are the ones that
commonly use their profits to provide for their families with things like food,
clothing, shelter and education, women currently comprise roughly two-thirds of
all microfinance clients. The goal of micro financing is to provide individuals with
money to invest in themselves or their business to help get them out of poverty.
When providing loans, micro financing institutions do not require collateral, but
do insist that the loan is repaid within six months to a year.

The expansion of the network of the banking system in the rural areas
helped in bringing banking to the masses. The
i n s t i t u t i o n a l c re d i t w h i c h accounted for only 7% of the
borrowings of the rural households in 1951-52increased to 61.2% in
1981, but came down to 56.6% in 1991. Tanks to the efforts of the
banking system, the agriculture credit flow during 2003-04 has
reached a massive Rs. 80000 core. The credit flow to the agriculture
sector h a s b e e n re g i s t e r i n g a s d e c a d a l a n n u a l g ro w th r a t e
o f a ro u n d 1 4 t o 1 5 % which means the doubling of credit fl ow
in about every fi ve years or so.


According to International 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.

"Microfinance is the supply of loans, savings, and other basic financial services
to the poor."

"The poor stay poor, not because they are lazy but because they have no
access to capital.

A s p e r o n e o f t h e w or k i n g g r o u p s o f RBI
Microfinance refers to small saving, credit and insurance services extended to
socially and e c o n o m i c a l d i s a d v a n t a g e d s e g me n t s o f s o c i e t y. I n m u c h
m o r e b r o a d er context it include capacity building, training, marketing of products,
establishing forward and backward linkage to micro-enterprise

2.2 Role of Microfinance:

The micro credit of microfinance prename was first initiated in the year 1976 in
Bangladesh with promise of providing credit to the poor without collateral ,
alleviating poverty and unleashing human creativity and endeavor of the
poor people. Microfinance impact studies have demonstrated that:

Microfinance helps poor households meet basic needs and protects
them against risks.
The use of financial services by low-income households leads
to improvements in household economic welfare and enterprise stability
and growth.
By supporting womens economic participation, microfinance
empowers women, thereby promoting gender-equity and improving
household well being.
The level of impact relates to the length of time clients have had access to
financial services.

3 . Microfinance in India

India has 800 million poor people who live on the brink of subsistence. This is one of the
largest populations of poor in the world. The bottom 5% of Indias poor, considered ultra
poor , face even deeper levels of chronic hunger, persistent poor health and
illiteracy. To cope with their vulnerability, the poor have no choice but to take
loan for consumption and income generation from money lenders that charge
exploitative rates of interest. This can put the poor in a debt trap.

If poor people can access loans with fair interest rates, they could break out of
the cycle of poverty. Bureaucracy, corruption, illiteracy and challenging logistics
prevent the poor from accessing loans from banks and the government.
Microfinance in India started in 1974 in Gujarat as Shri Mahila SEWA (Self
Employed Womens Association) Saharawis Bank. Registered as an Urban
Cooperative Bank, they provided banking services to poor women employed in
the unorganized sector. Microfinance later evolved in the early 1980s around
the concept of informal Self-Help Groups (SHGs) that provided deprived poor
people with financial services. From modest origins, the microfinance
sector has grown at a steady pace. Now in a strong endorsement of microfinance,
the National Bank for Agriculture and Rural Development (NABARD) and Small
Industries Development Bank of India (SIDBI) have committed themselves to
developing microfinance.

The microfinance sector has been "witnessing a tremendous growth" during the last
few years in India in terms of loan portfolio, geographical area and outreach. With
Indias GDP growing at the rate of 7.1 % the countrys socio-economic pyramid
is turning around the story with millions of poor people becoming entrepreneurs

Some data regarding the microfinance industry in India in 2014-15

Profile of Microfinance Institution in India

The scenario:-

Estimated that 350 million people live Below Poverty Line

This translates to approximately 75 million houses.

Annual credit demand by the poor in the country is estimated to be about Rs.

Cumulative disbursements under all micro finance programmes is only
about Rs. 5000crores.

Total outstanding of all micro finance initiatives in India estimated to be

Rs. 1600crores.

Only about 5 % of rural poor have access to micro finance


A Task Force on Microfinance recognized in 1999 that micro finances much more than
microcredit, stating: "Provision of thrift, credit and other financial services and
products of very small amounts to the poor in rural, semi-urban and or urban
areas for enabling them to raise their income levels and improve living standards".
The Self Help Group promoters emphasize that mobilizing savings is the first
building block of financial services.

For many years, the national budget and other policy documents have almost
equated microfinance with promoting SHG links to the banks. The central bank
notification that lending to MFIs would count towards meeting the priority sector
lending targets for Banks offered the first signs of policy flexibility towards MFIs. One
could argue that MFIs are small and i n s i g n i f i c a n t , s o w h y b ot h e r. Th e l a rge r
p o i n t i s a b o u t p o l i c y s p a c e f o r innovation and diversity of approaches to
meet large unmet demand. The insurance sector was partially opened to
private and foreign investments during 2000. Over 20 insurance companies are
already active
andexperimenting with new products, delivery methodologies and strategic

M i c r o f i n a n c e pr o g r a m m e r s h a v e r a pi d l y e x p a n d e d i n r e c e n t y e a r s .
Some examples are:

Membership of Sa-Dhan (a leading association) has expanded from 43 to

96Community Development Finance Institutions during 2001-04. During the
same period, loans outstanding of these member MFIs have gone up
fromUS$15 million to US$101 million.

Th e C A R E C A S H E P r o g r a m m e t o o k o n t h e c h a l l e n g e o f w o r k i n g with
small NGO-MFIs and community owned-managed
microfinanceo rga n i s a t i o n s . O u t r e a c h h a s e x p a n d e d f r o m 3 9 , 0 0 0 t o a r o u n
d 300000 w o m e n m e m b e r o v e r 2 0 0 1 - 0 5
M a n y o f t h e 2 6 C A S H E p a r t n e r s a n d another 136 community

organizations these NGO-MFIs work with, represent the next level of emerging
MFIs and some of these are already dealing with ICICI Bank and ABN Amor.

I n a d d i t i o n t o t h e d o mi n a n t S H G m e t h o d o l o g y, t h e p or t f o l i o s o f Grame
en replicators have also grown dramatically. The outreach of SHARE Microfinance
Limited, for instance, grew from 1,875 to 86,905 members b e t w e e n 2 0 0 0
a n d 2 0 0 5 a n d i t s l o a n p o r t f o l i o h a s gr o w n f r o m US $ 0 . 4 7 million to
US$40 million.

Since banks face substantial priority sector targets and microfinance is beginning to
be recognized as a profitable opportunity (high risk adjusted returns), a variety
of partnership models between banks and MFIs have
beent e s t e d . A l l v a r i e t i e s o f b a n k s - d o m e s t i c a n d i n t er n a t i o n a l , n a t i o n
a l a n d regional - have become involved, and ICICI Bank has been at the fore from to
some of the following innovations:

Lending wholesale loan funds.

Assessing and buying out microfinance debt (securitization).

Tes t i n g a n d r o l l i n g o u t s p e c i f i c r e t a i l p r o d u c t s s u c h a s t h e K i s a n
(Farmer) Credit Card

Engaging microfinance institutions as agents, which are paid for loan origination
and recovery, with loans being held on the books of banks.

Equity investments into newly emerging MFIs

Banks and NGOs jointly promoting MFIs.

The 2005 national budget has further strengthened this policy perspective and the
Finance Minister Mr P. Chidambaram announced" Government intends to promote
MFIs in a big way. The way forward, I believe, is to identify MFIs, classify and
rate such institutions, and empower them to intermediate between the lending banks and
the beneficiaries.

"What is beginning to happen in microfinance can be seen from the perspective
of what has happened to phones in India. With the right enabling environment, and
intense competition amongst private sector players, mobile phones in India expanded by
160% during just one year 2003-04 (from 13 to33 million). Mobile tariffs fell by 74%
during the same period. While this is heady progress, there is a less heralded but even
more powerful nationwide s u c c e s s o n a c c e s s . I n t h e l a t e e i g h t i e s , t h e
p h o n e i n f r a s t r u c t ur e w a s t h e monopoly of public sector institutions. Phones
were difficult to get and even more difficult to use for those lacking ownership.
Realization that users need not own a phone to access one led to privatization of the last
mile - where a phone user could interface with a private sector provider using
the public sector telecom infrastructure. Even with this policy change, today there
are2.5 million entrepreneurs selling local, national and international phone
services through the length and breadth of India. Many of these are
n o w graduating to sell internet services and could potentially be banking agents -that is
the evolving story.

Savings services are needed by many more customers and as frequently as access to
phone services. Many poor households value
accesst o s a v i n g s s e r v i c e s a n d f i n d n e w p r o v i d e r s a n d a r r a n g e m e n
t s , d e s p i t e hearing of unreliable savings collectors or even occasionally falling prey
to s u c h a r r a n g e m e n t s . M a n y c u s t o m e r s ar e r i c h , l i t e r a t e a n d l u c k y t o
h a v e banks working for them. But many others lack access to safe, secure
and accessible savings services for the short, medium and long terms. In the past,
many banks sent collectors to gather these savings but problem
s w i t h monitoring, inability to tackle misappropriation and the rising aspiration
of collectors to become permanent staff of public sector banks killed a
usefuls e r v i c e . T h e c e n t r a l b a n k h a s s t r i c t l y f o r b i d d e n c o m me r c i a l b a n
k s f r o m using agents in collection of savings services. This is unfortunate as:

Effective microfinance delivery is about managing transaction costs for

providers and customers. A combination of agents and technology can p l ay a
powerful role in rightly aligning incentives for the collector and
customers, while keeping transaction costs manageable for everyone.

The banks can only open so many branches, and fixed and operating costs are
high, apart from approvals still needed from the central bank to open new
branches or close existing ones. The appointment of agents can keep costs
manageable and offer greater flexibility to Banks.

Banking service may not be able to defy the commercial logic
pursuedb y m o s t o t h e r s e c t o r s w h e r e a v a r i e t y o f r e t a i l e r s p r o v i d e
s e r v i c e s t o c u s t o me r s , w h i l e c o mp a n i e s f o c u s o n c u s t o m e r n e e d s , pr o
d u c t d e s i g n , quality control, branding, logistics and distribution.

Fortunately, the 2005 Budget opened a small window in this area and the central bank
annual policy recently confirmed discussions on this: "As a follow-up to the Budget
proposals, modalities for allowing banks to adopt the agency model by using the
infrastructure of civil society organizations, rural kiosks and village knowledge
centers for providing credit support to rural and farm sectors and appointment of
micro-finance institutions (MFIs) as banking correspondents are being worked out." But
readers may note that between the budget and the annual policy statement, "credit" has
again crept in as the key perceived need


Most of the countries in the world are either in the category of
developing or underdeveloped economy. When compared with developed
countries, developing and underdeveloped countries have more population and less

I n a ny e c o n o my, m o s t o f t h e d a y - t o - d ay a c t i v i t i e s r e q u i r e m o n e y.
Money is mandatory for education, wedding, health, etc. The financial needs of any
human being can be divided into lifecycle, needs, personal emergencies, disasters,
invest opportunities, etc.

Agriculture is the main occupation for those in rural areas. The

f a r me r s h a v e t o i n v e s t m o n e y t o b uy s e e d s , f e r t i l i z e r s , l a n d a n d
v a r i o u s requirements for agriculture. But because of their financial crisis, they find it
difficult to buy them. So they usually depend on moneylenders and
other informal financial sources. The formal financial institutions do not
much i n t er e s t i n l e n d i n g t o t h e r u r a l p o o r. Th e r e a r e m i l l i o n s o f t h e m
w h o a r e presently suffering from the high interest rates and debt overhang in
the developing and underdeveloped countries.
T h e r e a r e t w o b a s i c s t r a t e g i e s t h a t c a n h e l p t h e p o or t o m e e t
t h e i r needs. The strategy of providing money before the need arises is known
as Saving Up. When a need arises, to fulfill the need, people borrow money. Later
they save money to repay the loan. It is known as Saving Down.

The above fact has given rise to microfinance. This is purely based on the fact that poor
can save, borrow or lend and even repay their debts.
These findings have led to other great inventions like liquid-yields options.
The fundamentals financial services, like savings, credit and insurance
provide an opportunity to people to borrow, save, invest and protect against
risks. Poor people require basic insurance option, saving services and
realistic remittance systems to manage their assets and generate income. But
with little income, they are unable to manage their lives and, moreover, they are not
able to borrow money from banks. Hence, they tend to rely on
informalfinancial institutions, like village moneylenders, pawn-brokers,
RotatingSavings and Credit Associations (ROCSAs), Accumulating Savings a
ndCredit Associations (ACSAs), savings collections, supply shops, moneygua
rds etc. which usually charge a high rate of interest on whatever is
lent.I n I n d i a t h e a p e x f i n a n c i a l i n s t i t u t i o n w h i c h pr o v i d e m i c r o f i n a n c e
a r e National Bank for Agriculture and Rural Development (NABARD),Commercial
Banks, Small Industries Development Bank of India (SIDBI),Regional Rural Banks,
Co-operative Banks, Non Banking Financial Companies (NBFCs), etc.

3.3 Activities in

Micro credit:

It is a small amount of money loaned to a client by a bank or other institution.

Micro credit can be offered, often without collateral, to an individual or through
group lending

Micro savings:

These are deposit services that allow one to save small amounts of money for
future use. Often without minimum balance requirements, these savings
accounts allow households to save in order to meet unexpected expenses and
plan for future expenses Micro insurance: It is a system by which people,
businesses and other organizations make a payment to share risk. Access to
insurance enables entrepreneurs to concentrate more on developing their
businesses while mitigating other risks affecting property, health or the ability to


These are transfer of funds from people in one place to people in another,
usually across borders to family and friends. Compared with other sources of
capital that can fluctuate depending on the political or economic climate,
remittances are a relatively steady source of funds.

Product Design:

The starting point is: how do MFIs decide what product s to offer? The actual
loan products need to be designed according to the demand of the target
market. Besides the important question of what risks to cover, organizations
also have to decide whether they want to bundle many different benefits into
one basket policy, or whether it is more appropriate to keep the product simple.
For marketing purposes, MFIs sometimes prefer the basket cover, since it
can make the policies sound comprehensive, but is that the right approach for
the low-income market? After picking products, one must also understand how
they are priced. What assumptions do the organizations make with regard to
operating costs, risk premiums, and reinsurance, and how did they come to
those conclusions? Would their clients be willing to pay more for greater

From price, the logical next set of questions involves efficiency. Indeed, given
the relative high costs of delivering large volumes of small policies, maximizing
efficiency is a critical strategy to ensuring that the products are affordable to
the low-income market. One way is to make the products mandatory, which
increases volumes, reduces transaction costs and minimizes adverse selection.
What does an organization lose by offering mandatory insurance, and how does
it overcome the disadvantages? MFIs can combine a mandatory product with
some voluntary features to make the service more us to mar-oriented while.

Techniques of Product Design:

To design a loan product to meet borrower needs it is important to understand

the cash pattern of the borrowers. Cash pattern is important so far as they
affect the debt capacity of the borrowers. Lenders must ensure that borrowers
have sufficient cash inflow to cover loan payments when they are due efficiency
depends less on the delivery model than on the simplicity of the product or
product menu. Simple products work best because they are easier to administer
and easier for clients to understand. Another efficiency strategy is to use
technology to reduce paperwork, manual processing and errors.MFIs need to
conduct a costing analysis to determine how much they need to earn in
commission to cover their administrative expenses.

MFIs Products and its Management:

The micro-credits model:

The model is fairly straightforward and simple.

Focus on jump-starting self-employment, providing the capital for poor

women to use their innate "survival skills" to pull themselves out of

Lend to women in small groups (credit circles), say of five or seven.

Make loans of small amounts to two out of five.

The three who have not received loans will be eligible only when this first
round of loans has been repaid.

Draw up a weekly or bi-weekly repayment schedule.

In case any member defaults the entire circle is denied access to credit.

Banks have been given freedom to formulate their own lending norms keeping
in view ground realities. They have been asked to devise appropriate loan and
savings products and the related terms and condition including size of the
loan, unit cost, unit size, maturity period, grace period, margins, etc

4 Issue that trigger transformation

We examine the five significant issues that trigger the transformation

of NGOs into MFOs.

The most significant issue that triggers a transformation is growth. This

affects the promoters as well as providers of microfinance. In organization
like Mysore Resettlement and Development Agency (MYRADA) and South Indian
Federation of Fisherman Societies (SIFFS), which promoted credit g r o u p s ,
b a n k s w e r e u n w i l l i n g t o pr o v i d e l o a n a t t h e s a me p a c e a t w h i c h
m i c r o f i n a n c e c u s t o m e r s n e e d e d t h e m . I t w a s n o t e a sy f o r M Y R A D A
o r SIFFS to deal with the attitudes of people meaning in this organizations.

Ins e v e r a l i n s t a n c e s i t w a s a n e n t h u s i a s t i c b a n k m a n a g e r w h o m a
d e t h e difference and this was not institutionalized. In such situation, NGOs tend

tog e t i n t o a c t i o n b y o p e n i n g a m i c r o f i n a n c e d i v i s i o n o r b y s e t t i
n g u p a separate MFO. The genesis of several Indian MFOs is rooted in the
failure of banks to meet the needs of the poor.

2. Diversity:-
Another trigger for transformation is the diverse financial services thata n M F O
w a n t s t o o ffe r. I n m o s t c a s e s , N G O s s t a r t w i t h c r e d i t b ut s o o n realize
the need to provide other support services. While MFO reduced their o w n l e n d i n g
r i s k s t hr o u g h g r o u p g u a r a n t e e s a n d a d dr e s s e d t h e i s s u e o f willful
default, they have not been able to grapple with the situation where t h e
u n d e r l y i n g e c o n o mi c a c t i v i t y f a i l s a n d t h e b or r o w e r f a c e s a g e n u i n e

3. Sustainability:-
S u s t a i n a b i l i t y i s c l o s e l y l i n k e d t o gr o w t h . B e y o n d a c e r t a i n
level,MFOs have to seek external funds for keeping the credit
a c t i v i t y g o i n g . When MFOs seek funds from financial institutions, issues
like ownershipstructure and capital adequacy become critical. For MFO to survive in
longrun, it has to transform itself into as institution with transparent system
anda c c o u n t a b i l i t y . I n m o s t o f c a s e s t h e p r o m o t e r s o f M F O s d o n
o t h a v e sufficient capital to invest and, therefore, the main constraint is that they
aredialing with other peoples money. NGOs have to clear-cut owner
Structure, and making people liable under this format is a problem. The onlyo p t i o n
t h e y h a v e i n or d e r t o b e s u s t a i n a b l e i s t o d e a l w i t h
m a i n s t r e a m institutions (Rhyme, 2000).

4. Focus:-
NGOs need to maintain focus on their original mandate. Undertakingmicrofinance is
transaction intensive and requires distinct orientation andskills. For NGOs
there is always a conflict between microfinance,
whiche a r n s r e t u r n s a n d , t h e r e f o r e , c o m m e r c i a l a n d o t h e r a c t i v i t i e s t
h a t a r e developmental. This is the reason why NGOs spin off their
ownmicrofinance activities. The entity that emerges to carry out
microfinanceshould be understood by the mainstream and, therefore, it should
have anappropriate institutional form.

5. Taxation:-
When an NGO carries out commercial activities (microfinance) on alarge scale, it is
liable to lose its tax free status and is likely to jeopardize its other activities. Even

grants may become taxable. This is a major concernfor NGO-MFOs. This also triggers
a search for an alternative source, wheremicrofinance could be kept isolated

4.1 Micro-Financing Regulation in India

Advantage of Regulation:

Following are the advantages and benefits of regulation

and supervision of /MFIs:-

P r o t e c t s t h e i n t e r e s t o f t he d e p o s i t o r s ;

Put in place prudential norms, standards and practices

P r o v i d e s s u ff i c i e n t i n f o r m a t i o n a b ou t t h e t r u e r i s k s f a c e d b y
t h e b a n k s / MF I s ;

P r o m o t e r s s ys t e m i c s t a b i l i t y a n d t h e r eb y s u s t a i n s pu b l i c
c o n f i d e n c e i n t h e b a n k s / MF I s ;

P r e v e n t s a b a n k s/ MF I s f a i l ur e / p o t e n t i a l d a ng e r s t hr o u gh
timely interventions;

P e n a l i z e s t h e v i o la t i o n s , m i s c o n d u c t s , n on - c o m p l i a n c e t o
the norms of behavior

P r o v i d e s i n v a lu a b l e a d v i s or y i n p u t s f o r pr o b l e m - s o lv i n g an d
o v e r a l l i m p r o v e m e n t o f t h e ba n k s / MF I s ;

P r o v i d e s a f e , s t r o n g a n d so u n d ba n k i n g / MF s ys t e m a n d
e f fe c t iv e b a n k in g / MF p o l i c y a n d

P r o m o t e s a n d e n h a n c e s or d er l y e c o n o m i c g r o wt h a n d


The microcredit, which has its roots in 1970s, lost its momentum for awhile. It achieved
great deal in its progress by delivering financial services to the people of urban and
nearby areas. But, it failed to reach the populated rural areas. Its other goal, i.e.,
eliminating the traditional moneylenders from the business has been achieved partly.

There are four major categories of microfinance-providers, who are engaged in

the microfinance movement to achieve its goals. They are:

1. Informal Financial Service-Providers:-

This category includes pawn-brokers, money lenders, ROSC As, ACSAs savings
collections, supply shops and money guards. These are very flexible and easy to

access. But these services are costly and are in limited variety. There are high
risks of losing money.

2. Member-owned Organizations:-

This category includes Self-Help Groups (SHGs), financial cooperatives and a

variety of hybrid organizations like Financial Service Associations (FSA) and
Self-managed Village Savings and Credit Associations (SVSCAs). Generally, theses are
small, situated in local areas and have access to each others financial circumstances.
Hence, these groups offer convenient and flexible services. They have low cost of
operations and are managed by the poor. Simultaneously due to lack of
awareness about financial services, poor are getting into trouble when they
are in need of money to perform their daily activities. Hence, these member-owned
organizations are playing vital role in the lives of poor.

3. NGOs:-

They play significant role in lending microfinance. They began

their o p e r a t i o n s b y p r o mo t i n g f i n a n c i a l s e r v i c e s t o t h e p o or a n d l o w -
i n c o m e households in rural areas of the developing countries. Recently, the RBI has
permitted NGOs to merge with microfinance activities for the promotion of the External
Commercial Borrowing (ECB) up to $5mn. Of late, the SIDBI has provided a need-
based financial support to poor and assembled efficient and well-performing NGOs and
microfinance institution in Orissa.

4. Formal Financial Institutions:-

T h i s c a t e g o r y c o n s i s t s o f c o m me r c i a l B a n k s , s t a t e - o w n e d b a n k s ,
agricultural development banks, savings banks and NBFCs, which are well-regulated
and supervised. They have branch network spread over nationally and internationally
which offers a wide range of products. But, they have an expensive operation
framework which enables them to serve the poor or remote population

So, to solve the microfinance problems, these institutions can bridgeleverage through
appropriate regulation and supervision. It helps themicrofinance movement to achieve
its goals rather quickly and effectively.


(NABARD)was established asan apex rural development bank in the year1982, through
an Act of Parliament, to providerefinance for agriculture, allied activities, small scale
industries, cottage and village industries,rural artisans and crafts in an integrated manner.
Earlier, RBI and GOI managed the loans andcredits for the poor but, these bodies wanted
some other body which fully managed thisactivities i.e. distribution of loans and credits to
the poor people. It was set up with an initialcapital of Rs 100 crore, which was enhanced to
Rs 2,000 crore, fully subscribed by theGovernment of India and the RBI.The bank's vision is
"to facilitate sustained access to financial services for the unreached poor inrural areas
through various microfinance innovations in a cost effective and sustainablemanner.

6. Microfinance in banks:-

Traditionally, banks incurred substantial cost in managing the clientsaccounts. This is

true irrespective of sum of money involved. Generally,poor people possess small
amount of money. If banks decide to serve thesep e o p l e , t h e i r b r e a k -
e v e n p o i n t s i n l o a n s a n d d e p o s i t s w i l l b e a f f e c t e d seriously and
they have to incur loss. But, with economic growth in rural
Areas through microfinance, banks are developing an interest inmicrofinance. In the
case of ICICI bank, there has been a huge developmentin rural microfinance and agri-
business loans within 9 months time and thereis growth in financial turnover with an
average of Rs. 5,200 cr to Rs. 10,000cr. Microfinance shows its impact on the banks
growth, customer relationship and accumulates 3.2 million low-
income customers. Indiaslargest international bank, Standard Chartered Bank
is planning to involve inmicrofinance to increase the Banks turnover from Rs. 100 cr to
Rs. 500 cr.T h e AB N Amr o B a n k b e l i e v e s t h a t m i c r o f i n a n c e i s a
p o w e r f u l t o o l f o r addressing poverty, empower the socially-marginalized poor and
strengthenthe social fabric.

6.Facts about Microfinance Industry as a
Whole world

Out of the 6.7 billion in the world, 3 billion people live on less than USD 2 per day

80% of the world's population has no access to financial services (GDRC).

The worlds 10,000 microfinance institutions provide funding to 150 million

active clients, 3/4 of who are women. An estimated 500 million potential
microfinance clients are yet to be reached (Planet Finance).

Fewer than 2 % of poor people have access to financial services (credit or

savings) from ources other than money lenders. (Data Snapshots on
Microfinance - The Virtual Library on Microcredit).

The Microcredit Summit estimates that INR 1015 billion (USD 21.6 billion)
is needed to provide microfinance to 100 million of the world's poorest
families. The Summit planners say it should be possible to raise USD 2 billion
from borrowers' savings alone. The final figure may be even higher. (Data
Snapshots on Microfinance - The VirtualLibrary on Microcredit).

There is a potential demand for micro saving services from 19 million

savers. (DataSnapshots on Microfinance - The Virtual Library on

Studies of the impact of microcredit in more than 24 countries found

dramaticimprovements in household income levels. These improvements
took place primarilythrough growth in the borrower's business, which
translated into increased householdincome. The studies found that
access to microcredit allowed the borrower to increasethe number of
goods or services sold and reduce the costs of supplies and
raw materials.As a result, sales increased and profits grew from 25% to
40% (Units)

6.1Weakness and strength of microfinance


A] Strength of microfinance institution:-

The biggest strength is bringing financial services to poor people and making It
financial sustainable by the economies of scale effect.

In India the National Bank for Agriculture and Rural Development

(NABARD)finances more than 500 banks that on lend funds to self help groups (SHG).

SHGs comprise twenty or fewer members, of whom the majorities are women
from the poorest castes and tribes. Nearly 1.4 million SHGs comprising
approximately 20 million women now borrow from banks, which make the Indian SHG-
Bank Linkage model the largest microfinance program in the world.

Similar programs are evolving in Africa and Southeast Asia with the assistance
of organizations like Opportunity International, Catholic Relief Services, CARE,
APMAS and Oxfam. Also helps in the development of an economy by giving
everyday people the chance to establish a sustainable means of income.
Eventual increases in disposable income will lead to economic development and

B]Weakness of microfinance institution:-

Theres not much research done on the actual effectiveness of microfinance as

a tool for economic growth. Some argue that theres too much focus on
microfinance which will motivating less spending in other helping assistances as
public health, welfare, and education.

Some doubt microfinance really has that impact on poverty as the praction
would submit. Other describes micro crediting as a privatization of public safety
net programs. Theres also some microfinance institutions charging excessive
interest rates.
Questions against the Grameen Bank were raised in a Wall Street Journal
article. It was regarding the repayment rate, collection methods and
questionable accounting practices.

Studies of microcredit programs have found that women often act as collection
agents for their husbands and sons, such that the men spend the money
themselves while women are saddled with the credit risk. Some borrowers have
become dependent on loans for household expenditures rather than capital
investments. The key debate about microfinance is whether
The two different approaches are usually named as:-
a] poverty lending
b] the welfaresapproach
It should focus on improved welfare or financial sustain ability the institution
approach or financial system approach . The welfares approach could be for
example supplying the customer with education and health wise the
institutionists focus only on the financial service. The reason for that is only with
total focus on financial sustainability the huge demand can be met. MFIs with
the welfares approach are for example the Grameen Bank and Women s World
Banking. Examples of institutions are ACCION International and BRI Unit Desa

6.2 Opportunity of microfinance institution

1.Huge demand and supply gap:-

There is a huge demand and supply gap among the borrowers and issuers. In India
around 350 million of the people are poor and only few MFIs there to serving them.
There is huge opportunity for the MFIs to serve the poor people and increase
their living standard. The annual demand of Micro loans is nearly Rs 60,000 crore
and only 5456 crore are disbursed to the borrower. Employment Opportunity: Micro
Finance helps the poor people by not only providing them with loan but also
helps them in their business; educate them and their children etc. So in this
Micro Finance helping in increase the employment opportunity for them and for
the society.

2. Huge Untapped Market:-

India total population is more than 1000 million and out of 350 million is living below
poverty line. So there is a huge opportunity for the MFIs to meet the demand of
that un served customers and Micro Finance should not leave any stones
unturned to grab the untapped market.

3. Opportunity for Pvt. Banks:-

Many Pvt. Banks are shying away from to serve the people are unable to
access big loans, because of the high intervention of the Govt. But the door open
for the Pvt. Players to get entry and with flexible rules Pvt. Banks are attracting towards
this segment

7.Industry Growth

Some quick highlights industry growth in India:

MFIs have recorded about 8.5 million clients during the year 2008-09, a
growth of 60% over the previous year.

More than 50 percent of low income households are covered by some form
of microfinance product

The total outstanding microfinance loans posted a growth rate of 30% or 359.39
billion over the last years level of Rs 229.54 billion.

The overall coverage of the sector is estimated to have reached 76.6

million against 59Million last year.

The SHG loan outstanding has increased by Rs. 71.5 billion with an
addition of 6.9million clients.

Some parts in Karnataka faced entrenched default constituting a portfolio

share of less than 0.5%.

MFIs so far reached 234 of the 331 poorest districts identified by the government.

SBLP registered a decline of number of women SHGs from 82.5% in March 2007
to80.4% in March 2008.

The microfinance penetration index shows especially in Bihar, Madhya

Pradesh, Rajasthan and Uttar Pradesh compared to extraordinary levels
reached in Andhra Parades, Karnataka and Tamil Nadu.

While last years report focused on the increased risk in the sector, this
years report takes stock of the uninterrupted growth rate of the sector
despite several internal and external adversities

7.1 five leader and player in microfinance

industry as per CrisisRating

1] SKS Microfinance Ltd (SKSMPL)

Name SKS Microfinance Ltd
Hedquater Secuaderabad,Andhra Pradesh
Legal status Pvt. Ltd Company(NBFC)
Leading model JLG
Number of Branches 1,413
Loans outstanding (Rs.Mn)As per 2013 18,227
Borrowers as on 2013 2,59,0950

2. Spandana Sphoorty Financial Ltd (SSFL)

Name Spandana sphoorty finance ltd

Headquarter Hyderabad ,Andhra Pradesh
Legal status Public ltd. Company (NBFC)
Leading model JLG, Individual
Number of Branches 696
Loans outstanding (Rs.Mn)As per 11987
Borrowers as on 2013 1668807

3. Share Micro finance Limited (SML)

Name Share microfinance ltd

Headquarter Hyderabad ,Andhra Pradesh
Legal status Public ltd. Company (NBFC)
Leading model JLG, Individual
Number of Branches 669
Loans outstanding (Rs.Mn)As per 8568
Borrowers as on 2013 1231556

4. Asmitha Microfinance Ltd (AML)

Name Asmitha microfinance ltd

Headquarter Hyderabad ,Andhra Pradesh
Legal status Public ltd. Company (NBFC)
Leading model JLG, Individual
Number of Branches 363
Loans outstanding (Rs.Mn)As per 4944
Borrowers as on 2013 694550

5. Shri Kshetra Dharmasthala Rural Development Project (SKDRDP)

Name Shri Kshetra dharmasthala Rural

Development Project
Headquarter Dharmasthala, Karnataka
Legal status Trust
Leading model SHG
Number of Branches 22
Loans outstanding (Rs.Mn)As per 4060
Borrowers as on 2013 612482

8. Working method of microfinance institution

The GrameenBANK of Bangladesh has developed a joint liability model that its MFIs
are using suited for local conditions.

When choosing a village the MFI conduct a comprehensive survey to brief the potential
for operations and the local conditions in a village. The MFI are evaluating some key
factors like village population, DEGREE of poverty, road accessibility, political
stability and safety. When a village has been selected, the MFI introduces its mission,
methodology and the services they are offering.

After the informational presentation interested women are gathered in group formations.
They have to be in the age between 18 and 59. The women put them self together in
groups of five to serve as guarantors for each other. Earlier experience has shown that a
group of five persons is small enough to create group pressure between the members,
enforcing them to be loyal to each other. In case someone of the group members are not
able to repay theLOAN the group is big enough to help with the payments. The
company does not influence the selection of group members nor the decision regarding
the income generation activity nor the loan amount they intend to take. Group members
must live close to each other and cannot be related to each other.

If a borrower defaults on her loan, the entire group typically is penalized and sometimes
barred altogether from taking further LOANS . This peer pressure encourages
borrowers to be very selective about their peer group members and to repay loans in full
and on time.

Then the group training begins, usually as a five day program. The purpose is to educate
the members in the procedures of theFINANCIAL products, delivery methods,
calculation of INTEREST, business development skills and how to sign their names.
The members are also taught in quality management, to identify an income generation
activity, how to set prices and how to market. They field staff also build a culture of
credit discipline and collective responsibility. The field staff makes sure the members
qualifies for the program and collects data for future analysis. Within the village, a
center is created collecting the groups. The center is responsible for the payments of all
groups, enabling a dual liability system. When the village center is created the financial
transactions can begin.

The groups meet weekly in the villagecenter where they can discuss newLOAN
APPLICATIONS , loan utilization, and community issues. The field staff of the MFIs
conducts the meetings with rigid discipline in order to sustain the credit discipline of the
group. All financial transactions are conducted during the meetings.

Microfinance is a relatively new segment of the market economy that is why

institutions created in this segment have short experience in their activities, and their
personnel is not sufficiently experienced and qualified. Taking this into consideration,
staff of these institutes is recommended to follow the internationally recognized
principles of microfinance:

thorough examination of potential clients of the microfinance

thorough estimation of business viability and also factors which
can positively or negatively affect the results of work in specific
thorough registration of documents and contracts related
toLOAN issuance and microfinance services providing;
keep in touch with client in combination with monitoring of the
terms of paying a credit, interests payments and with the aim to find
out potential and real problems;
setting ofINTEREST RATES for microfinance services compatible
with market ones;
quick reaction to any problems which can complicate the
perspectives of getting off issued credit paidbased

8.1Different Working Model of Microfinance
1. Self Help Group (SHG) Bank Linkage Model

2. Grameen Bank Model (Joint Liability Group Model)

3. Regional Rural Bank (RRB) Model

4. Co- operative Model

5. Individual Rural Volunteers (IRV) Model

6. Micro Finance Institute (MFI) Mode


Self- help groups (SHGs) play today a major role in poverty alleviation in rural
India. A growing number of poor people (mostly women) in various parts of India
are members of SHGs and actively engage in savings and credit (S/C), as well
as in other activities (income generation, natural resources management,
literacy, child care and nutrition, etc.). The S/C focus in the SHG is the most
prominent element and offers a chance to create some control over capital,
albeit in very small amounts. The SHG system has proven to be very relevant
and effective in offering women the possibility to break gradually away from
exploitation and isolation.

Savings services help poor people:

Savings has been called the forgotten half of microfinance. Most poor people
now use informal mechanisms to save because they lack access to good formal
deposit services,. They may tuck cash under the mattress; buy animals or
jewelry that can be sold off later, or stockpile inventory or building materials.
These savings methods tend to be riskycash can be stolen, animals can

get sick, and neighbors can run off. Often they are illiquid as well one cannot
sell just the cows leg when one needs a small amount of cash. Poor people
want secure, convenient deposit services that allow for small balances and
easy access to funds.MFIs that offer good savings services usually attract
far more savers than borrowed

Ability to save and access loans

Opportunity to undertake an economic activities

Mobility-Opportunity to visit nearby towns

Awareness- local issues, MFI procedures, banking transactions

Skills for income generation

Decision making within the household

Various SHG Bank Linkage Model

Linkage Model

Modified Linkage

NGO Model

Modified NGO Model

Indirect NGO Model

IFAD (International Fund for Agricultural Development) Mode

2 Grameen Bank Model

5 member Joint liability Groups

40 member centers

Weekly group meetings

Established methodology for :-

1. Client screening
2. Group recognition
3. Loan sanctioning
4. Collections

Collections enforced through

1. Joint liability
2. Peer pressure

One time membership fees

The mode of operation of Grameen Bank is as follows. A bank branch is set up with
a branch manager and a number of centre managers and covers an area
of about 15 to 22villages. The manager and the workers start by visiting
villages to familiarize themselves with the local milieu in which they will be
operating and identify the prospective clientele, as well as explain the
purpose, the functions, and the mode of operation of the bank to the local
population. Groups of five prospective borrowers are formed; in the first
stage, only two of them are eligible for, and receive, a loan.

The group is observed for a month to see if the members are conforming
to the rules of the bank. Only if the first two borrowers begin to repay the
principal plus interest over a period of six weeks, do the other members of the
group become eligible themselves for a loan. Because of these restrictions,
there is substantial group pressure to keep individual records clear. In
this sense, the collective responsibility of the group serves as the
collateral on the loan

3. Regional Rural Bank Model

Rural banking in India started since the establishment of banking sector in

India. Rural Banks in those days mainly focused upon the agro sector. Regional
rural banks in India penetrated every corner of the country and extended a helping

hand in the growth process of the country.SBI has 30 Regional Rural Banks in
India known as RRBs. The rural banks of SBI are spread in 13 states extending
from Kashmir to Karnataka and Himachal Pradesh to North East. The total
number of SBIs Regional Rural Banks in India branches is 2349 (16%). Till date
in rural banking in India, there are 14,475 rural banks in the country of which
2126 (91%) are located in remote rural areas.

1.Rural people Group will approach to the NGO for the requirement of the credit
and loan to improve their lives and for the technical support.

2. The NGO have tie up with the commercial banks and any other financial
institution they will ask them for the amount to give them so that they can
provide it to the ruralpeople group.

3. The Commercial bank will provide the technical support to the NGO and
same they will provide it to the Rural people Group.
4. Then Rural people group will provide there credits and savings to the NGO
and commercial bank

4. Co - operative Model

The cooperative model was the first to introduce microfinance in developing

countries, inspired by the successes in Europe and North America at the end of
the nineteenth century. The main principles of the cooperative approach include

1. The formation of the Group will take place main objective of the group
formation was to produce some products and service so that they can
offer it to the market.
2. The main requirement was to have money for it and it was provided by
the Microfinance Institution to this group to start their own small business

3. By having the finance from the Microfinance Institution then this group will
start working together.

4. After that these group will penetrate their products into the market
and earn profit with the result of which they give it to the Microfinance
Institution as a interest rate

5 Individual Rural Volunteer Model

1. The group will form of the 10 to 15 women and they will work under the supervisionof
the rural volunteer.

2. The Rural Volunteer will ask for the financial and technical support from
thecommercial bank.

3. Commercial bank will provide them technical support and that was passes to

4. The group will do work and provide the savings to the bank.
6 Microfinance Institution Model

1. Group will form and they will approach to the microfinance institution for the

2. Microfinance Institution will approach to the commercial bank for the


3. Group will work and generate cash provide savings to the Microfinance
Institution and same Microfinance Institution will provide the savings to
the commercial ban

9. Major Milestone of Microfinance in India

1904 Legal framework for establishing the co-operatives

1969 Nationalization of Bank

1971 Establishment of priority sectors

1975 Establishment of RRBs

1982 Establishment of NABARD

1992 Launching of the SHG -Bank Linkage programme

1993 Establishment of Rashtriya Mahila Kosh

1998 NABARD sets a goal for linking one million SHGs by 2008

2000 Establishment of SIDBI Foundation for Microcredit

2005 MFDEF(micro finance development and establishment fund)doubled

to rs.200crores.

2005 One million SHG linkage target achieved 3 years ahead of target

2006 committee on financial inclusion

2007 proposed bill on microfinance regulation introduced in parliament

10. SKS (Swayam Krishi Sangam) microfinance

SKS microfinance was founded in 1998 as a Non Banking Financial
Corporation(NBFC) by Vikram Akula..SKS Microfinance is Indias largest and
one of the worlds fastest-growing microfinance organizations. It claims that its
mission is to empower the poor by providing them collateral-free loans for
income generation.
*Know SKS

Our purpose is to eradicate poverty. We do that by providing financial
services to thepoor and by using our channel to provide goods and services that the
poor need.
Our vision is to serve 50 million households across India and other parts
of the world and also to create a commercial microfinance model that
delivers high value to our customers.
SKS has its own anthem titled Udhte Jaayen, Badhte Jaayen (meaning
flying on, marching ahead in Hindi) aimed at motivating staff across SKS.
Composed byEuphoria, a popular Indian band, the SKS anthem is energetic and
positive in tone.

4.Our logo:
Between 1998 and 2009, SKS Microfinance had a logo that wasdistinctive
and easy to identify. It included a visual of a group of five women, which
iscore to our business. The visual was enclosed within two concentric circles
in blue withSwayam Krishi Sangam (the full form of SKS) written in Telugu.

10.1 Introduction of Vikram

Akula (A man behind sksmicrofinance)

Vikram began working in rural India two decades ago. He started his
developmentcareer in 1990 as a community organizer of womens self-help
groups for the DeccanDevelopment Society, a non-profit working in rural Andhra
Pradesh, India.

He then joined the World Watch Institute in Washington DC as a researcher,

where hewrote articles on poverty and development.
As a Fulbright Scholar in India in 1994-95, Vikram led on a government-funded action-
research project that provided micro-credit to poor farmers for food security.

After extensive research based on field work and graduate study, Vikram
founded SKSMicrofinance as a non-profit in late 1997. He led the organization
until 2004, when hejoined McKinsey & Company in Chicago as a
management consultant.

In 2005, he returned to SKS when it converted to a for-

profit company and led it fromserving just thousands of
poor women borrowers in one state in India to millions
acrossthe country today.
Awards and achievements of Vikram Akula
Vikram has received several awards for his work with SKS, including the
Ernst& Young Entrepreneur of the Year in India (Business Transformation in
2010;Start-up in 2006),

The World Economic Forums Young Global Leader award (2008).

Social Entrepreneur of the Year in India (2006).

The Echoing Green Public Service Entrepreneur Fellowship (1998-2002).

In 2006, Vikram was named by TIME Magazine as one of the worlds 100
mostinfluential people.

Vikram Akula was also featured on the front page of Wall Street Journal

10.2 Working Methodology of SKS

SKS Microfinance follows the Joint Liability group Model. The methodology
involves lending to individual women, utilizing five member groups where groups serve
as the ultimate guarantor for each member.

Our approach is to provide financial services at the doorstep of members in

villages and urban colonies. This allows the poor convenience and savings in
terms of cost and time associated with travelling to mainstream banks and
enables SKS staff to promptly and fully collect repayments.

Our loans are designed for convenience with small weekly repayments
corresponding to cash flows. Small first loans inculcate credit discipline and
collective responsibility.

Interest and loan repayments are simplified for easy comprehension.

The step by step procedure of SKS Microfinance

1. Village selection:
Before starting operations, our staff conduct village surveys to evaluate local
conditions like population, poverty level, road accessibility, political stability and
means of livelihood.

2. Projection meeting:
After a village is selected, SKS staff introduces the community to its mission,
methodology and services.

3. Mini projection meeting:

Follow-up with interested women and direct appeal tothose who may not have
attended earlier because of religious, class, caste or gender barriers.

4. Group formation:
Women form self-selected five-member groups to serve asguarantors for
each other. Experience has shown that a five-member group is smallenough to
effectively enforce group peer pressure and, if necessary, large enough tocover
repayments in case a member needs assistance

5.Compulsory group training:

CGT is a four-day process consisting of hour-long sessions designed to educate clients on
SKS processes and procedures and to also build a culture of credit discipline.
Using innovative visual and participatory teaching methods, SKS staff
introduces clients to our financial products and delivery methods. CGT also
teaches clients the importance of Collective responsibility, how to elect group
leaders, how to affix signatures, and a pledge that serves as a verbal contract
between SKS and its members.

During this training period, SKS staff collects quantitative data on each client to
ensure qualification requirements are met, as well as to record base-line
information for future analysis. On the fourth day, clients take a Group
Recognition Test conducted by a different staff member than the one who
trained them. If they pass, they are officially accepted as SKS members.

6. Centre meeting:
As additional groups are formed within a single village, a Centre(sangam)
emerges. During Centre Formation, groups are combined to form a centre of
3to 10 groups or 15 to 50 members. Weekly Centre meetings serve as a time to
conduct financial transactions. Meetings are held early in the morning, so as to
not interfere with clients daily activities.

A leader and deputy leader are selected to facilitate meetings and ensure
compliance with SKS procedures. In addition to financial transactions, members
use the weekly meetings to discuss new loan applications and community
issues. Centre meetings are conducted with rigid discipline in order to sustain
the environment of credit discipline created during CGT

10.3 Detailed explanation of
the various products of the SKS

1.Proprietary product

Income generation loan(igl)-aarambh


1.Loans range from Rs.4,000 to Rs. 10,000for the first loan; subsequent loan
amounts determined by past credit history and increased each in set
increments unto a maximum of Rs.26,000

2.Term of the loan is 50 weeks with principal and interest payments due on a
weekly basis

3.12.5% flat interest rate / 24.55%annual effective interest rate

Provides self-employed women financial assistance to support their business
enterprises, such as raising livestock, running local retail shops called kirana
stores, providing tailoring and other assorted trades and services

Mid-Term Loan (MTL) Vriddhi


1. Loan amounts range from Rs.2,000 to Rs. 14,000 in each annual cycle.
2. Available any time after the completionof 20 weeks & before 40 weeksof an
3. Term of the loan is50 weeks with principal and interest payments due on a
weekly basis.
4. 12.5% flat interest rate 24.55%annual effective interest

Provides self-employed women financial assistance to support their business
enterprises, such as raising livestock, running local retail shops called kirana
stores, providing tailoring and other assorted trades and services

Emergency Loans and Advances Raksha


1. Interest freeemergency loans range from Rs.500 to Rs. 2,000.

2. Term of the loan is20 weekswith a bullet repayment.3.Interest free funeral

advances of Rs 1,000 adjustedout of the claim settlement of loan

1. Designed to meet the unforeseen emergency requirements of members.
2. Disbursedwithin 24 hours of request.
3. Funeral advance paid to a members family upon the death of the member or
her spouse

Life insurance loan:-

1. 1.Interest free loans of Rs. 500.
2. 2.Term of 25 weeks with principal repaid weekly.

1. 1.Issued to members to pay their life insurance premiums during the initial
25 week period.
2. 2.Helps to promote habit of savings and reduction of vulnerability among members
Mobile loan

1. 1.Financingof mobile phonesand telephone services.

2. Loan amounts range from Rs.1,500 to Rs. 3,000.
3. 3.26.14% annual effectiveinterest rate and loan processing feeof 1%.
4. Term of 25 weeks.

Provides financing for mobile phones and telephone services to our member

Housing loan


1. Loans range from Rs. 50,000 to Rs. 150,000.

2. Members must have completed at least3 IGL cycles to qualify or one ILP to be
3. Term of loan is 3 to 5years with principal and interest payments due on a monthly

4. 11.9% flat interest rate, 21%annual effective interest rate.

5. In addition, loan processing fee

6. of 2% collected upfront.

Provides financial access to women for construction of new houses or improvement &
extension of existing house

2.Distribution Product

Life insurance:-
1. Weekly payment of Rs. 20 for the term of five years.
Upon death, we disburse to the beneficiary the full sum assured of Rs. 5,000plus the
account value, which is equal to the aggregate of the premiums paid plus
interest accrued, if any, less any charges for the administration of the policy. In
the event the death is deemed an accidental death, the beneficiary receives Rs.
10,000 plus the account value. Upon maturity in five years where no death has
occurred, we disburse to the policyholder the account value

10.4 social responsibility of SKS


While credit for Micro-enterprise has been the anchor of microfinance, SKS
knows that it is not just enough. Therefore, SKS provides quality English
medium primary education to children of rural India at very low costs through
the Bodhi Academy; it ensures better health for children across rural India
through mass scale immunization and de worming programmes.

For the destitute sections of society who do not have even the social collateral
to access microfinance, SKS manages the Ultra Poor Programme through its

The SKS Ultra Poor Programme addresses the challenge of extreme poverty in
its three manifestations, economic, social and health, and aims to graduate ultra
poor clients to appoint where their growth is self-sustainable.

An intensive 18-month programme helps enhance the awareness levels about

government sources, social issues and health care, and creates stable

Upon graduation, many members may choose to join microfinance

organizations or government sponsored SHG (Self Help Group) Bank linkage
programme to sustain livelihoods and diversify into new opportunities

The microfinance sector is changing fast: the supply continues to
grow with $81.5 billion in loans worldwide and a 5% growth in the
number of customers in 2012. Services, actors, regulation and
technologic innovations are changing for microfinance tomorrow
remains an alternative to banking services for more than 2.5 billion
people still excluded from the traditional banking system globally. The
banking sector, the increasing role of new actors, the expansion of
services offered to clients, but also the importance of control in a
maturing industry will be the big topics of microfinance in the next

Financial inclusion in 10 years?
The sector of inclusive finance will continue to expand beyond
traditional microfinance institutions.

New actors such as mobile operators and distribution networks will

increase the offers of financial services and products at lower cost to
reach the poorest and most isolated populations.

The online banks and the new technologies will also market these
large scale offers.
The regulations will be more focused on client protection than
institutions, processes or products.

The financial inclusion will become a reality in most regions that are
currently excluded, with the exception of a few very isolated

Structural changes expected

Technological advances will cause major structural changes in the

Digital finance and mobile banking allow already a larger number of
people to access financial services and products.

Thanks to technological innovations, not only the contribution of

financial services is more diversified - offering credit, insurance and
savings products - but these new low-cost payment infrastructure also
give other services and public facilities more accessible to the poor,
such as water pumps or sunlamps.
This type of innovation will rise with the spread of mobile banking
services in the developing countries.

Niche actors, such as small financial institutions and agent network

managers, will emerge and try to get a place among the big banks
and small customers.
Simple and easily marketable products will be needed because the
banks will not be able to train their agents, scattered throughout the
country, with specificities of complex products.

12 . Case study of sks microfinance

Name: Ameena Bi

Children: Two Daughters, One Son

Place: Chowdadena Hal, Narsapur Mandal, Kolar, Karnataka

Business: Florist

When Ameena Bi and her husband Abdul Latif from Kolar worked as
daily wagers they could barely make INR.120 (USD 2) per day as wages. While
Ameena was a construction labour, Abdul worked at a shop making mattresses. With
three school-going children to fend for, they had a tough time making ends meet.

Three years ago, they sensed hope round the corner when Ameena learnt
about SKS. She joined an SKS centre near home and availed her first Income
Generation Loan of INR 10,000 (USD 212). The couple dreamt of having a
small shop selling mattresses, pillows and cushions. Cotton and cloth are sourced
from wholesale dealers in Bangalore and an assistant was hired to help with the

It takes approximately three hours to make a single mattress and we charge

INR 600(USD 12) for the same. The Assistant is paid Rs.40 per mattress, explains

Twenty-five weeks later Ameena took a Mid-Term loan of INR 2, 000 (USD 42)
and with her fathers help set up a small enterprise selling flowers. She sources
flowers from her own little garden and the wholesale flower bazaar in Kolar. She
has also hired two assistants who help her make garlands and she pays them
Rs.40 per day (less than a dollar). Soon she created a sales channel using local
trucks who would help transport her flowers to nearby local markets.

Ameena and Abdul were gaining confidence in themselves with every passing
day. At the end of 50 weeks, Ameena took her second Income Generation loan
of INR 12,000(USD 255) which the couple used judiciously to expand their business.

Today, Ameena earns INR 300 (USD 6) per day and during festive and wedding
seasons this amount goes up significantly. Abdul too earns INR 300 (USD 6) -
INR 400(USD 8.5) on an average per day. They have come a long way in the three
years of using

Microfinance and look forward to when they can access an Individual loan
which would help them further build their business. I am happy with the services
rendered by the Company. Our lifestyle has improved and we are respected and
loved by all. Today we dream of a larger business and a better life for our
children, says a grateful Ameena

13 Conclusion

Microfinance has a long way despite doubts expressed and criticism

launched about its viability, ivbbmpact, and poverty fighting capacity.
There should, however, be no room for complacency. The task of building
a poverty-free world is yet to be finished. There are still over 1.2 billion
people living in extreme poverty on this planet. They are not living in
one country or region but spread all over the world. The last decade has
witnessed an impressive growth of microfinance; lack of funding is still
considered a major obstacle in the way of its growth. However, it is
encouraging that the situation is
Changing. Given the experiences of large and fast growing the last
decade has witnessed an impressive growth of microfinance; lack of
funding is still considered a major obstacle in the way of its growth.
However, it is encouraging that the situation is changing. Given the
experiences of large and fast growing Microfinance, there are lessons for
others who want to increase their outreach and operate on a sustainable

Fortunately, there is an increasing awareness about the power of

microfinance, and the need to support its growth. Many players
have committed themselves to its promotion. Governments are taking an
increasing interest in it. More banks, both national and international are
coming forward with different support packages. NGO-MFI partnerships
are on the increase. New instruments are being used to solve the problem
of funding. It is expected that in the coming years more ideas,
innovations, cost saving devices, and players will continue to reinforce
the microfinance movement and increase its expansion.

At the end I would conclude that, Micro Finance Industry has the huge
potential to grow in future, if this industry grows then one day well all see
the new face of India, both in term of high living standard and happiness.

One solution by which we all can help the poor people, i.e. in a whole year
a medium and a rich class people spends more than Rs 10,000 on them
without any good reason. Instead of that, by keeping just mere Rs, 3000
aside and donate that amount to the MFIs, then at the end of the year the
total amount inthe hands of poor would be ( average 500 million people
*Rs 3000)=Rs 1,500,000,000,000 . Just imagine where would be India in
next 10 years.

Private MFIs in India, barring a few exceptions, are still fledgling efforts
and are therefore unregulated. Their outreach is uneven in terms of
geographical spread. They serve micro finance clients with varying
quality and using different operating models. Regulatory framework
should be considered only after the sustainability of MFI model as a
banking enterprise for the poor is clearly established. Experimentation of
MFI model needs to be encouraged especially in areas where formal
banks are meeting adequate credit demand of the rural poor.