AN ANALYTICAL STUDY OF MICROFINANCE

&
ITS IMPACT ON INDIAN ECONOMY
 A

SYNOPSIS

ON

AN ANALYTICAL STUDY OF MICROFINANCING & ITS IMPACT ON

INDIAN ECONOMY

Submitted in the partial fulfillment of the requirement

For the award of degree of

MASTER OF BUSINESS ADMINISTRATION (MBA)

To

MAHARSHI DAYANAND UNIVERSITY, ROHTAK

SUBMITTED TO: - SUBMITTED BY:-

Mr. P.K. SHARMA MANISHA BHARDAWAJ
Faculty Roll No-2922
Amity Business School, MBA (Final)
Manesar

AMITY BUSINESS SCHOOL, MANESAR

(2010-2011)
 PROFORMA FOR APPROVAL OF PROJECT PROPOSAL

Name of the Student Manisha Bhardawaj

Institute Roll No. 2922

Institute’s Name Amity Business School, Manesar

Title of the Project An Analytical Study Of Microfinancing

& Its Impact On Indian Economy

Subject Area Finance

Name and Designation of the Supervisor Mr. P.K.Sharma

Faculty
Amity Business School, Manesar.

Signature of the Supervisor Signature of the Student

Signature of the Director

Date:

\
 SYNOPSIS APPROVED NOT APPROVED

Comment/Suggestion for reformulating the project.

______________________________________________________________
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Authorized Signatory

Date:
 Table of Contents

1. Introduction
2. Significance of the Study
3. Conceptualization
4. Scope of the study
5. Review of Existing Literature
6. Focus of the Study
7. Objectives of the study
8. Research Methodology
9. Limitations of the study
10. Organization of the Study
11. Bibliography
 INTRODUCTION

This study will analyze the performance and impact of Microfinance in Indian economy.
Microfinance is very important in current scenario for development of Indian economy. They are
playing a noticeable role in the development of Indian economy. NABARD defined Micro
finance:-

Microfinance as the provision of thrift, saving, credit and financial services and products  of
very small amount to the poor in rural, semiurban and urban areas for enabling them to raise
their income levels and improve their standard of living. MFIs could play a significant role in
facilitating inclusion, as they are uniquely positioned in reaching out to the rural poor. Many of
them operate in a limited geographical area, have a greater understanding of the issues specific to
the rural poor, enjoy greater acceptability amongst the rural poor and have flexibility in
operations providing a level of comfort to their clientele.
The first thing to remember is that in India the history of rural credit, poverty alleviation and
microfinance are inextricably interwoven. Any effort to understand one without reference to the
others, can only lead to a fragmented understanding. The forces and compulsions that shaped
the initiatives in these areas are best understood in context of State and banking policy over time.
Thus, for e.g., there were peasant riots in the Deccan in the late 19th Century on account of
coercive alienation of land by moneylenders. The policy response of the then British
Government to this problem of rural indebtedness was to initiate the process of organization of
cooperative societies as alternative institutions for providing credit to the farmers as also to
ensure settled conditions in the rural areas, so necessary for a colonial power to sustain itself.
In the development strategy adopted by independent India, institutional credit was perceived as a
powerful instrument for enhancing production and productivity and for alleviating poverty. The
formal view was that lending to the poor should be a part of the normal business of banks.
Simple as that.
To achieve the objectives of production, productivity and poverty alleviation, the stance of
policy on rural credit was to ensure that sufficient and timely credit was reached as expeditiously
as possible to as large a segment of the rural population at reasonable rates of interest.
According to RBI:-
“Micro Credit is defined as provision of thrift, credit and other financial services and
products of very small amount to the poor in rural, semi-urban and urban areas for enabling
them to raise their income levels and improve living standards. Micro Credit Institutions are
those which provide these facilities.”
To define, Microfinance is the provision of financial services to low-income clients, including
consumers and the self-employed, who traditionally lack access to banking and related services.
Microcredit is a financial innovation. It is the extension of very small loans (microloans) to
those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady
employment and a verifiable credit history and therefore cannot meet even the most minimal
qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is
the provision of a wider range of financial services to the very poor.
The mostly used service of MFIs is the micro-credit to begin, establish, sustain, or expand very
small, self-supporting businesses. The main aim of the micro-finance is to improve the condition
of the poor. In micro-credit the main focus remain on women where groups of women in which
every member of the group guaranteed the repayment of all members is give a sum of money as
a loan. The Government of India has classified the MFIs as NBFCs (Non Banking Financial
Company).This study will examine the various aspects of MFIs and their role in Indian economy.
 SIGNIFICANCE OF THE STUDY

“All progress is born of inquiry. Doubt is often better than over confidence for it leads to

inquiry, and inquiry leads to invention.” Increased scientific and inductive thinking and it

promotes the development of logical habits of thinking and organization.

Research has its special significance in solving various operational and planning problems of
business and industry. Research, along with motivational research, are business decisions, this
research is the investigation of the impact and performance of the MFIs for the purpose of
financial growth of Indian economy.
The present study, will an attempt to analyze the financial performance of various microfinance
 institutions operating in India. MFIs must be able to sustain themselves financially in
order to continue pursuing their lofty objectives, through good financial performance.
 CONCEPTUALIZATION

Microfinance-
Microfinance is the provision of financial services to low-income clients, including
consumers and the self-employed, who traditionally lack access to banking and related services.
More broadly, it is a movement whose object is "a world in which as many poor and near-poor
households as possible have permanent access to an appropriate range of high quality financial
services, including not just credit but also savings, insurance, and fund transfers." Those who
promote microfinance generally believe that such access will help poor people out of poverty.
As defined by the Asian Development Bank (ADB), it is - A provision of a broad range
of financial services such as deposits, loans, payment services, money transfers, and insurance to
poor and low-income households and their micro-enterprises. In the late 90s, numerous agencies
involved in micro-financing operations in India started adding other financial services, including
micro-insurance to its micro-finance operations.

Microcredit;-
A part of microfinance, is defined as provision of thrift, credit and other financial services and
products of very small amount to the poor in rural, semi-urban and urban areas for enabling them
to raise their income levels and improve living standards. Micro Credit Institutions are those
which provide these facilities.

MFIs Institutions:-
A range of institutions in public sector as well as private sector offers the micro finance services
in India. They can be broadly categorized in to two categories namely, formal institutions and
informal institutions. The former category comprises of Apex Development Financial
Institutions, Commercial Banks, Regional Rural Banks, and Cooperative Banks that provide
micro finance services in addition to their general banking activities and are referred to as micro
finance service providers. On the other hand, the informal institutions that undertake micro
finance services as their main activity are generally referred to as micro Finance Institutions
(MFIs). While both private and public ownership are found in the case of formal financial
institutions offering micro finance services, the MFIs are mainly in the private sector.
History:-
Ideas relating to microcredit can be found at various times in modern history.
Individualist anarchist Lysander Spooner wrote about the benefits of numerous small
loans for entrepreneurial activities to the poor as a way to alleviate poverty. Ideas relating to
microcredit were mentioned in portions of the Marshall Plan at the end of World War II.
Microcredit is a financial innovation. The origins of microcredit in its current practical
incarnation, with attention paid by economists and politicians worldwide, can be linked to
several organizations founded in Bangladesh, especially the Grameen Bank in the 1970s and
onward, for which its founder Muhammad Yunus was awarded the Nobel Peace Prize in 2006. In
this country, it has successfully enabled extremely impoverished people to engage in self-
employment projects that allow them to generate an income and, in many cases, begin to build
wealth and exit poverty.
The Challenge:-
Traditionally, banks have not provided financial services to clients with little or no
cash income. Banks must incur substantial costs to manage a client account, regardless of how
small the sums of money involved. For example, the total profit from delivering one hundred
loans worth $1,000 each will not differ greatly from the revenue that results from delivering one
loan of $100,000. But the fixed cost of processing loans of any size is considerable: assessment
of potential borrowers, their repayment prospects and security; administration of outstanding
loans, collecting from delinquent borrowers and so on. There is a break-even point in providing
loans or deposits below which banks lose money on each transaction they make. Poor people
usually fall below it.
In addition, most poor people have few assets that can be secured by a bank as collateral.
Seen from a broader perspective, it has long been accepted that the development of a healthy
national financial system is an important goal and catalyst for the broader goal of national
economic development. However, the efforts of national planners and experts to develop
financial services for their nations' majorities have often failed since World War II. Because of
certain difficulties, when poor people borrow they often rely on relatives or a local moneylender,
whose interest rates can be very high. Hopes of quickly putting them out of business have proven
unrealistic, even in places where microfinance institutions are very active.
 While the success of Garmin Bank (which now serves over seven million poor Bangladeshi
women) has inspired the world, it has proved difficult to replicate this success in practice. In
nations with lower population densities, meeting the operating costs of a retail branch by serving
nearby customers has proven considerably more challenging.
Need for Micro financing:-
Since the 1950s, various governments in India have experimented with a large number of grant
and subsidy based poverty alleviation programmes. Studies show that these mandatory and
dedicated subsidized financial programmes, implemented through banking institutions, have not
been fully successful in meeting their social and economic objectives:
The common features of these programmes were :
i. target orientation

ii. based on grant/subsidy, and

iii. credit linkage through commercial banks.

These programmes
a. were often not sustainable

b. perpetuated the dependent status of the beneficiaries

c. depended ultimately on government employees for delivery

d. led to misuse of both credit and subsidy and

e. were treated at best as poverty alleviation interventions.

Banks too never really looked on them as a profitable and commercial activity.
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.
In India too, the formal financial institutions have not been able to reach the poor households,
and particularly women, in the unorganized sector. Structural rigidities and overheads lead to
high cost of making small loans. Organizational philosophy has not been oriented towards
recognizing the poor as credit worthy. The problem has been compounded by low level of
influence of the poor, either about their credit worthiness or their demand for savings services.
Micro-finance programmes have often been implemented by large banks at government behest.
Low levels of recovery have been further eroded due to loan waiver programmes leading to
institutional disenchantment with lending to small borrowers.
All this gave rise to the concept of micro-credit for the poorest segment along with a new set of
credit delivery techniques. With the support of NGOs an informal sector comprising small Self
Help Groups (SHGs) started mobilizing savings of their members and lending these resources
among the members on a micro scale. The potential of these SHGs to develop as local financial
intermediaries to reach the poor has gained recognition due to their community based
participatory approach and sustainability - recovery rates have been significantly higher than
those achieved by commercial banks inspite of loans going to poor, unorganized individuals
without security or collateral.
Success stories in neighboring countries, like Garmin Bank in Bangladesh, Bank Rakiat in
Indonesia, Commercial & Industrial Bank in Philippines, etc., gave further boost to the concept
in India in the 1980s.
The Global Summit on Micro Finance held in Washington in Feb ‘97 set a global target of
covering 100 million poor families with credit by 2005 - it was expected that 25-30 million of
these could be in India alone.
The poor in India define the micro-finance market. The Planning Commission estimate of 1993-
94 says 36% of the population or 320 million people live below the poverty line - there would be
140-150 million women alone living below the poverty line. Assuming that only 30% of the
country’s poor women are ready to adopt micro-finance as a method of poverty alleviation, it is
estimated that 40-45 million poor women would need credit.
As against this, it is estimated that all agencies in India engaged in the provision of micro-
finance services, would have together covered barely one million poor people by the close of
1998-99.
The most prominent national level micro-finance apex organization providing micro-finance
services for women in India is the National Credit Fund for Women or the Rashtriya Mahila
Kosh (RMK).
Some principles that summarize a century and a half of development practice were encapsulated
in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by the Group of Eight
leaders at the G8 Summit on June 10, 2004.

1. Poor people need not just loans but also savings, insurance and money transfer services.

2. Microfinance must be useful to poor households: helping them raise income, build up
assets and/or cushion themselves against external shocks.

3. "Microfinance can pay for itself." Subsidies from donors and government are scarce and
uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.

4. Microfinance means building permanent local institutions.

5. Microfinance also means integrating the financial needs of poor people into a country's
mainstream financial system.

6. "The job of government is to enable financial services, not to provide them."

7. "Donor funds should complement private capital, not compete with it."

8. "The key bottleneck is the shortage of strong institutions and managers." Donors should
focus on capacity building.

9. Interest rate ceilings hurt poor people by preventing microfinance institutions from
covering their costs, which chokes off the supply of credit.

10. Microfinance institutions should measure and disclose their performance – both
financially and socially.

The main features of the micro-finance services being provided are :

1. It is a tool for empowerment of the poorest; the higher the income and better the asset
position of the borrower, the lower the incremental benefit from further equal doses of
micro-credit is likely to be.

2. Delivery is normally through Self Help Groups (SHGs).

 3. It is essentially for promoting self-employment; the opportunities of wage employment
are limited in developing countries - micro finance increases the productivity of self-
employment in the informal sector of the economy - generally used for (a) direct income
generation (b) rearrangement of assets and liabilities for the household to participate in
future opportunities and (c) consumption smoothing.

4. It is not just a financing system, but a tool for social change, specially for women - it does
not spring from market forces alone - it is potentially welfare enhancing - there is a public
interest in promoting the growth of micro finance - this is what makes it acceptable as a
valid goal for public policy.

5. Because micro credit is aimed at the poorest, micro-finance lending technology needs to
mimic the informal lenders rather than the formal sector lending. It has to : a) provide for
seasonality (b) allow repayment flexibility (c) eschew bureaucratic and legal formalities
(d) fix a ceiling on loan sizes.

Microfinance approach is based on certain proven truths which are not always recognized. These
are :
 That the poor are bankable; successful initiatives in micro finance demonstrate that there
need not be a trade-off between reaching the poor and profitability - micro finance
constitutes a statement that the borrowers are not ‘weaker sections’ in need of charity, but
can be treated as responsible people on business terms for mutual profit.

 That almost all poor households need to save, have the inherent capacity to save small
amounts regularly and are willing to save provided they are motivated and facilitated to
do so .

 That easy access to credit is more important than cheap subsidized credit which involves
lengthy bureaucratic procedures - (some institutions in India are already lending to
groups or SHGs at higher rates - this may prevent the groups from enjoying a sufficient
margin and rapidly accumulating their own funds, but members continue to borrow at
these high rates, even those who can borrow individually from banks).

 'Peer pressure' in groups helps in improving recoveries.

 Types of Organizations and Composition of the Sector:-
Microfinance providers in India can be classified under three broad categories: formal,
semiformal, and informal.
Formal Sector:-
The formal sector comprises of the banks such as NABARD, SIDBI and other regional
rural banks (RRBs).
 They primarily provide credit for assistance in agriculture and micro-enterprise
development and primarily target the poor. Their deposits at around Rs. 350billion and of
that, around Rs. 250billion has been given as advances. They charge an interest of 12-
13.5% but if we include the transaction costs (number of visits to banks, compulsory
savings and costs incurred for payments to animators/staff/local leaders etc) they come
out to be as high as 21-24%.

Semi – formal Sector:-

The majority of institutional microfinance providers in India are semi-formal
organizations broadly referred to as MFIs. Registered under a variety of legal acts, these
organizations greatly differ in philosophy, size, and capacity. There are over 500 non-
government organizations (NGOs) registered as societies, public trusts, or non-profit
companies.

Informal Sector:-
In addition to friends and family, moneylenders, landlords, and traders constitute the
informal sector. While estimates of their importance vary significantly, it is undeniable
that they continue to play a significant role in the financial lives of the poor.

MPI and MPPI

These two indices were presented in the last year’s report for the first time. The calculation of the index
was carried out as follows:
The number of credit clients of MFIs and members of SHGs with outstanding loans to banks were
computed and each states share to the country’s total mf clients was worked out. The intensity
of penetration of microfinance (MPI) was computed by dividing the Share of the State in microfinance
clients with share of population. Intensity of Penetration of Microfinance among Poor (MPPI) was derived
by dividing the share of the state in microfinance clients by share of the state in population of Poor. Since
the microfinance clients are in the numerator, a value of more than 1 indicates that clients acquired were
more than proportional to the population. Higher the score is above 1, better the performance. Lower the
score from 1 which is the par value, poorer is the performance in the state

SCOPE OF THE STUDY

Its scope:-
1. For the further research- It will help for the new researcher in this subject and related
subjects.
2. For the MFIs institutions- It will help for the MFIs about implication of their policies and
performance.
3. For the government – It will help for the government about his poverty reduction scheme
and Government can analyze the financial condition of MFIs.
4. For the people – It will help the people about MFIs’ services and their beneficial role in
Indian economy.

REVIEW OF EXISTING LITERATURE

The concept of micro-finance was given by Bangladeshi economist Mohammad Yunus in the
year 1976 and was successfully implemented in Garmin Bank. Micro-finance is providing basic
financial services to the poor or the people who don’t have any creditworthiness. The basic
financial services not only mean the micro-loans but also the savings, insurance (crop, cattle
etc.), housing loans and other financial products and services. Most MFIs usually travel to clients
to give loans and receive loan payments. And most of the times the loans are disbursed to a
group of people usually called Self Help Group (SHGs).

The MFIs have been proved a very effective and profitable business strategy over the
years. The Indian as well as the other countries MFIs have earned a handsome profit. The
number of SHGs linked, the amount disbursed, the number of beneficiaries are increasing i.e. the
service is being available to more and more persons effectively and efficiently. There have been
both positive and negative critical developments in the Indian MFI sector. On the positive side,
there has been leverage of MFIs newly found management expertise to achieve scale and spread
their operations well beyond their traditional operational areas. On the negative side, they have
been under attack from politicians and bureaucrats dominant in some of their traditional
operational areas in Andhra Pradesh and Karnataka as their loan recovery practices are under
scrutiny and their interest rates appear to be exorbitant. So these types of irregularities should not
be there. And there should be a sense of responsibility in the staff of all the MFIs and proper
training should be given to them. There are some social responsibilities of MFIs like reaching
poor or excluded clients, improving the quality and appropriateness of financial services,
contributing to employment and enterprise growth, improving the economic and social
conditions of clients and their households, and ensuring social responsibility to clients, to staff
and to the communities in which they work. These should also be taken care.
Although the type of risks faced by the poor such as that of death, illness, injury and accident,
are no different from those faced by others, they are more vulnerable to such risks because of
their economic circumstance. In the context of health contingency, for example, a World Bank
study (Peters et al. 2002), reports that about one-fourth of hospitalized Indians fall below the
poverty line as a result of their stay in hospitals. The same study reports that more than 40
percent of hospitalized patients take loans or sell assets to pay for hospitalization.1 indeed;
enhancing the ability of the poor to deal with various risks is increasingly being considered
integral to any poverty reduction strategy (Holzmann and Jorgensen 2000, Siegel et al. 2001).
Of the different risk management strategies, insurance that spreads the loss of the (few) affected
members among all the members who join insurance scheme and also separates time of payment
of premium from time of claims, is particularly beneficial to Such high percentage is also noted
by some MFIs in the utilization pattern of loans advanced by them (see SHEPERD 2003 for
example). Depending on an individual response to dealing with risks, the literature classifies all
risk management practices into three broad groups: risk reduction (RR), risk mitigation (RM)
and risk coping (RC) strategies. The first two are ex ante risk management strategies (that is,
used before a risky event takes place) whereas the third is an ex post strategy (that is after the
event takes place). Insurance, similar to savings and borrowings, is a part of risk mitigation
strategy (Brown and Churchill 1999, Holzmann and Joergensen 2000). the poor who have
limited ability to mitigate risk on account of imperfect labour and credit markets. In the past
insurance as a prepaid risk managing instrument was never considered as an option for the poor.
The poor were considered too poor to be able to afford insurance premiums. Often they were
considered uninsurable, given the wide variety of risks they face. However, recent developments
in India, as elsewhere, have shown that not only can the poor make small periodic contributions
that can go towards insuring them against risks but also that the risks they face (such as those of
illness, accident and injury, life, loss of property etc.) are eminently insurable as these risks are
mostly independent or idiosyncratic. Moreover, there are cost-effective ways of extending
insurance to them.
Thus, insurance is fast emerging as a prepaid financing option for the risks facing the
poor.

It can be seen that without sound financial performance the sustainability of these microfinance
 institutions is not possible. Increasingly questions are being raised over the cost of funds for 
these enterprise.and their ability to earn margins sufficient to cover their operational costs and 
still leave some profit(Arsyad, 2005). It has been pointed out repeatedly that MFIs need to be ec
onomically viable and sustainable in the long run (Srinivasan et al., 2006).

FOCUS OF THE STUDY

The study entitled “An Analytical study of microfinancing & its impact on Indian economy”
” focuses on the microfinance sector in India. The micro finance service providers
include apex institutions like National Bank for Agriculture and Rural Development
(NABARD), Small Industries Development Bank of India (SIDBI), and, Rashtriya
Mahila Kosh (RMK). At the retail level, Commercial Banks, Regional Rural Banks, and,
Cooperative banks provide micro finance services.
The study will consider the working process of microfinance institutions and their role in Indian
economy. The MFIs have been proved a very effective and profitable business strategy over the
years. There have been both positive and negative critical developments in the Indian MFI
sector. On the positive side, there has been leverage of MFIs newly found management expertise
to achieve scale and spread their operations well beyond their traditional operational areas. On
the negative side, they have been under attack from politicians and bureaucrats dominant in some
of their traditional operational areas in Andhra Pradesh and Karnataka as their loan recovery
practices are under scrutiny and their interest rates appear to be exorbitant. So, this study will
also try to find out the negative and positive aspects of micro finance and microfinance
institutions.

OBJECTIVES OF THE STUDY

 To know about Microfinance.
 To study the status of microfinance in India.
 To collect information about the formal and non-formal MFIs in India i.e. the
composition of microfinance sector.
 To study the products of MFIs
 To know about impact of MFIs on Indian economy
 To know about effectiveness of microfinance in India.

RESEARCH METHODOLOGY
The purpose of this study is to examine the impact of microfinance in India. This chapter details
the procedures for the study in the following sections:
(a) Research design,
(b) Data collection
(c) Data analysis instruments.
.
Design of Research:-
The present research will be descriptive as well as exploratory in nature. The study design is
Descriptive Research because it describes data and characteristics about the population or
phenomenon being studied and it deals with everything that can be counted and studied.
It will describe the Microfinance’s roles, working process and their impact on economy on the
basis of current data.

Data collection:-

The study will made by extensive review of secondary information available at different sources.
Broadly this study is a qualitative study and based on document reviews
It will depend on

 Secondary data

“In this research project researcher will use only secondary data.

Secondary source-
 Internet,
 Journals,
  Books,
 Reports prepared by various research scholars

Universe of the study:-

The universe of the study includes MFIs in India.

Sampling method
The sampling methodology is Convenience Sampling because it involves the sample being
drawn from that part of the population which is close to hand. That is, a sample population
selected because it is readily available and convenient for me

Analysis of Data
Graph and charts will use for analyze the data and review of the whole data and literature.

Microfinance in INDIA
Microfinance in India: An Overview
Indian Microfinance can be chronologically classified into four phases. The four stages are:-
Phase I: 1900s – 1969 Cooperative Movement
Phase II: 1969 - 1991 State Driven through National Banks and emergence of
NGOs
Phase III: 1992 – 2000 SHGs Bank Linkage program and Growth of NGO-MFIs
Phase IV: 2000 – today Commercialization of Microfinance
Phase I: Early 1900s – 1969
Credit Cooperatives
The earliest phase of Indian Microfinance can be described from early 20th century until 1969,
when credit cooperatives largely dominated as an institution in provision of microfinance
services. This phase began with passing of Cooperative Societies Act 1904, to extend credit in
Indian villages under government sponsorship. This step was provoked by agrarian riots in the
Deccan in the late 19th century that brought forth the issue of farmer indebtness to moneylender
to British Government. The agrarian riots prompted the British Government to give thrust to the
system of Taccavi loans to farmers, regulate money lending and promote rural credit
cooperatives as an alternative to money lenders. The rural credit cooperatives in India became a
means of pooling the few resources of the poor and providing them with access to different
financial services. However, not much was achieved until independence when credit
cooperatives were chosen by the government as an institutional mechanism for delivering credit
to the farm sector. The 1945 Cooperative Planning Committee found that a large number of
cooperatives were “saddled with the problem of frozen assets because of heavy over dues in
repayment.” All India Rural Credit Survey in 1947 brought out that only 3% of the total
borrowing of the cultivators was being met through the cooperatives. It also revealed that the
share of Institutional agencies, comprising the government, the cooperatives and the commercial
banks, in financing the borrowings of rural household was only 7.3 per cent in 1951-52
corresponding to the share of private money lenders which was as high as 68.6 per cent. With
large scale failure of credit cooperatives the stage was set for some fundamental changes in
Microfinance Institutional delivery.
Phase II: 1969 - 1991
State Driven Rural Finance through National Banks and Emergence of NGOs in
microfinance space
The nationalization of Banks in 1969 along with a strong political emphasis towards poverty
eradication led to a new rural finance policy that was directed at reducing the lending imbalances
in particular sectors. This new policy resulted in among other things to establishment of Regional
Rural Banks (RRBs) and adoption of priority sector lending by Banks under direct specifications
of the Reserve Bank of India (RBI). A decade later rural financial delivery got further boast in
1980-81 with the government sponsored Integrated Rural Development Programme (IRDP),
under which loans of less than Rs 15,000 (USD 330) were given to poor. In 20 years since its
implementation the financial assistance of approximately Rs 250 billion ($5.6 billion) was
provided to roughly 55 million families. However, underneath such aggregated figures, at the
ground level IRDP led to large scale misuse of credit. This created a negative perception about
the credibility of the micro borrowers among bankers further hindering access to banking
services for the low-income people. In addition to this State led large scale program, some civil
society organizations successfully experimented with microfinance models that were more
appropriate for the needs of poor households. Some prominent example of this are SEWA
Bank(Ahemedabad), Annapurna Mahila Mandal (Mumbai), and Working Women’s Forum
(Chennai). The first Self Help Groups (SHGs) started emerging in the country in 1980s as a
result of NGO activities such as MYRADA. In 1984-85 MYRADA started linking SHGs to
banks, when the SHGs’ credit needs increased and the groups grew large enough for the bank to
have transactions with. SHGs idea was taken up on a large scale later by NABARD scaling up
Indian Microfinance to new heights.
Phase III: 1992 – 2000
SHGs bank Linkage program and Growth of NGO- MFIs
By 1990s the problems with both State promoted institutional forms viz. Credit cooperative and
RRBs in delivery of rural credit were quite evident. The credit cooperatives were crippled with
poor governance, management and the poor financial health due to intrusive state patronage and
politicization. RRBs financial position deteriorated due to the burden of directed credit and
priority sector lending and a restrictive interest rate regime. The share of rural credit in the total
credit disbursement by commercial banks, which grew from 3.5 to 15 percent from 1971 to 1991,
has now declined again to 11 percent in 1998 (Sa-Dhan, 2004). For the first two decades of their
existence, political pressure and focus on outreach at the expense of prudent lending practices led
to very high default rates with accumulated losses exceeding Rs. 3,000 crores in 1999. In this
background various qualitative issues such as concerns about financial viability of institutions on
account of high rate of loan delinquency, cornering of subsidy by well off people, continued
presence of moneylenders, inability to reach the core poor came out in forefront and resulted in
reorientation in thinking around the1990s. In addition to inherent problems with existing
institution, the external factors also influenced Indian Microfinance. The macroeconomic crisis
in early 1990s that led to introduction of Economic Reforms of 1991 resulted in greater
autonomy to the financial sector. This also led to emergence of new generation private sector
banks viz. UTI Bank, ICICI Bank, IDBI Bank and HDFC Bank that would become important
players in
microfinance sector a decade later.
An important development in this phase was SHG Bank linkage program by NABARD which
greatly increased banking system outreach to otherwise unreached people and initiated a change
in the bank’s outlook towards low-income families from beneficiaries to customers. The
pioneering initiatives of MYRADA mentioned earlier, the SHG–Bank linkage program was
scaled-up on a large scale by the NABARD in the year 1992 by giving guidelines to banks for
financing SHGs through the banking system. With the success of this program RBI in 1996 took
the policy decision to include financing to SHGs as a mainstream activity of banks under their
priority sector lending.
. This period also witnessed the entry of another set of stakeholders Microfinance Institutions
(MFIs), largely of non-profit origins, with existing development programs.
Phase IV: 2000 – today
Commercialization of Microfinance
Since 2000, the microfinance sector saw some radical changes in many aspects. While the prime
objective remains poverty alleviation with new terms of inclusive growth or financial inclusion,
sector moved from sole social return approach to double bottom line approach of social and
financial returns. The emphasis on ‘bottom of the pyramid’ and good financial returns of some of
leading MFIs, brought many main stream commercial entities taking interest in the sector not
only as part of their corporate responsibility but as new business line. One among prominent
example in Indian context is ICICI Bank that adopted innovative ways in partnering with NGO
MFIs and other rural organizations to extend their reach into rural markets. UN declaration of
Microfinance year in 2005 gave further impetus towards recognition of microfinance as a
poverty alleviation tool and was able to attract a lot interest from large commercial entities such
as foreign banks, investors, pension funds etc. This
resulted in their participation in the sector for social and commercial return. The MFIs side
experienced similar appetite for increasing commercialization to scale up its operations and
profit. This translated into a number of changes. Increasingly NGO-MFIs began transforming
into regulated legal formats such as Non-Banking Finance Companies (NBFCs) or section 25
companies to attract commercial investment and become eligible for deposit taking entity which
could be an easy source of fund for lending but remains untapped. Today's MFIs, particularly
those which were founded after 2000, look and think differently from those of the 1990s. Many
of these “second generation” MFIs are promoted by entrepreneurs with mainstream corporate
experience. A parallel trend is the increased activity in the meso-level segment, which largely
extends consumer credit. Lead by pioneers such as Citi Financial and GE Money, today this
space has players such as HSBC's Pragati Finance, Standard Chartered's Prime Financials,
Fullerton India, and DBS Cholamandalam.
Current scenario: Indian Microfinance status
Since 2006-07, NABARD has been compiling and analysing the data on progress made in
microfinance sector, based on the returns furnished by Commercial Banks (CBs), Regional Rural
Banks (RRBs) and Cooperative Banks operating in the country. The banks operating, presently,
in the formal financial system comprises Public Sector CBs (27), Private Sector CBs (22), RRBs
(82), State Cooperative Banks (31) and District Central Cooperative Banks (370). Most of the
banks participating in the process of microfinance have reported the progress made under the
programme.
Support in the Formal Sector
a. National Bank for Agriculture and Rural Development- External website that opens in
a new window (NABARD)

NABARD is a development bank which facilitates credit flow for promotion and development of
agriculture, small-scale industries, cottage and village industries, handicrafts and other rural
crafts. Its Financial Inclusion Department (FID) is the nodal agency which oversees the Financial
Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF) which promote
microfinance initiatives.
b. Rashtriya Mahila Kosh- External website that opens in a new window

The National Credit Fund for Women or the Rashtriya Mahila Kosh (RMK) has a large number
of grant and subsidy based poverty alleviation programmes comprising micro-credit & micro-
savings schemes with a focus on poor women across the country. RMK takes active initiatives in
channelising funds, market development social advocacy.

c. Small Industries Development Bank of India (SIDBI)- External website that opens in a
new window

SIDBI's Foundation for Micro Credit is the apex wholesaler for micro finance in India. It
provides a range of financial and non-financial services such as loan funds, grant support, equity
and institution building support to the retailing Micro Finance Institutions (MFIs) including two-
tier MFIs so as to facilitate their development into financially sustainable entities, besides
developing a network of service providers for the sector.
d. Tamil Nadu Womens' Development Corporation- External website that opens in a new
window.

The Tamil Nadu Corporation for Development of Women, in partnership with Non
Governmental Organisations (NGOs) and Community based organisations, supports 'Mahalir
Thittam' or Self Help Groups (SHGs) which inculcate sound habits of thrift, savings and banking
amongst the volunteer members of the scheme.

Legal Forms of MFIs in India

Types of MFIs Types Estimated Number Legal Acts under which
Registered
Not for Profit MFIs NGO - mFIs 400 to 500 Societies Registration Act,
1860 or similar Provincial Acts
Indian Trust Act, 1882
Non-profit 10 Section 25 of the Companies
Companies Act, 1956
Mutual Benefit MFIs State credit 200 to 250 Mutually Aided Cooperative
Mutually Aided cooperatives Societies Act enacted by State
National credit
Cooperative Societies Government
cooperatives
(MACS) and similarly
set up institutions Mutually
Aided
Cooperative
Societies
For Profit MFIs 6 Indian Companies Act, 1956
Non-Banking Financial
Companies (NBFCs) Reserve Bank of India Act,
1934

Functioning Style
The Task Force observes that MFIs provide financial services to the poor by adopting one
of the following three approaches :
1. Exclusive focus on mF services : Under this category, NGOs implementing a variety
of MF programmes are the major players. These NGOs often act as financial intermediaries in
mobilising savings and on-lending donor funds or loan funds to the poor. These funds may (or,
may not) be added to client savings to form a corpus for on lending. There are a few cooperative
organisations that fall under this category of MFIs. These are registered under the Central
Cooperative Societies Act such as the Indian Cooperative Network of Women of the Working
Women's Forum and the thrift and credit cooperative societies promoted by the Cooperative
Development Forum in Andhra Pradesh. Also, a few of the MACS in Andhra Pradesh are
engaged in providing MF services exclusively. As indicated above, a few NBFCs also provide
microfinancial services.
2. MF services as one of their major objectives : Under this type, a large number of NGOs that
are engaged in various social sector programmes in health, education and environment also
provide mF services as an "add-on" activity. BASIX, an NBFC, also falls under this category.
3. Intermediary or apex institutions : Institutions like Rashtriya Mahila Kosh (RMK), the
Friends of WWB, Ahmedabad, Rashtriya Gramin Vikas Nidhi (RGVN), Guwahati are among
the few instituions providing indirect services in the mF sector by supporting smaller institutions
offering microfinancial services. Recently, SIDBI has set up a Foundation, viz. SIDBI
Foundation for Micro Credit (SFMC) for supporting microcredit provided by mFIs .
SHG – Bank Linkage Programme 2009-10
*Highlights
 Total number of SHGs savings linked with banks : 69.53 lakh
 Out of total [of which] exclusive Women SHGs : 53.10 lakh
 Out of total [of which] -SGSY SHGs : 16.94 lakh
 Total number of SHGs credit linked during 2009-10 : 15.87 lakh
 Out of total [of which] exclusive Women SHGs credit linked : 12.94 lakh
 Out of total [of which]-SGSY SHGs credit linked : 2.67 lakh
 Total number of SHGs having loans outstanding as on
31 March 2010 : 48.51 lak
 Of which exclusive Women SHGs : 38.98 lakh
 Of which-SGSY SHGs : 12.45 lakh
 Estimated number of of families covered upto 31 March 2010 : 97 million
Financial
 Total savings amount of SHGs with banks as on 31 March 2010 : ` 6198.71 crore
 Out of total savings of exclusive Women SHGs : ` 4498.66 crore
 Out of total savings of SGSY SHGs : ` 1292.62 crore
 Total amount of loans disbursed to SHGs during 2009-10 : ` 14453.30 crore
 Out of total loans disbursed to Women SHGs : ` 12429.37 crore
 Out of total loans disbursed to SGSY SHGs : ` 2198.00 crore
 Total amount of loans outstanding against SHGs
as on 31 March 2010 : ` 28038.28 crore
 Out of total loans o/s against Women SHGs : ` 23030.36 crore
  Out of total loans o/s against SGSY SHGs : ` 6251.08 crore
 Average loan amount outstanding per SHG as on March 2010 : ` 57795 crore
 Average loan amount outstanding per member
as on 31 March 2010 : ` 4128 crore
Participating banks
 Commercial banks [public] : 27
 Foreign banks + Private banks : 19
 Regional Rural Banks : 81
 Cooperative Banks : 318
 Small Industries Development Bank of India : 1
Grant Assistance to SHP is for Promotion of SHGs
 Grant assistance sanctioned during 2009-10 : ` 28.78 crore
 Cumulative sanctions upto 31 March 2010 : ` 107.66 crore
 Grant assistance for Rating of MFIs during 2009-10 : ` 15.83 lakh
Different Models of Microfinance
In this section, the data for the year 2009-10 alongwith a few preceding years have been
presented and reviewed under two models of microfinance involving credit linkage with banks :
A. SHG - Bank Linkage Model : This model involves the SHGs financed directly by the
banks viz., CBs (Public Sector and Private Sector), RRBs and Cooperative Banks.
B. MFI - Bank Linkage Model : This model covers financing of Micro Finance Institutions
(MFIs) by banking agencies for on-lending to SHGs and other small borrowers.

Top 20 MFIs in INDIA

Name of MFIs Headquarter Legal status Lending model Branch
 SKS Secunderabad Pvt. Ltd. Company JLG 1413
Microfinance Ltd. (Andhra Pardesh ) (NBFC)
.Spandana Hyderabad Public Ltd. Company JLG, Individual 696
Sphoorty (Andhra Pardesh ) (NBFC)
Financial Ltd.
.Share Microfin Hyderabad Public Ltd. Company JLG, Individual 666
Ltd. (Andhra Pardesh ) (NBFC)
.Asmitha Hyderabad Public Ltd. Company JLG 363
Microfin Ltd. (Andhra Pardesh) (NBFC)
Shri Kshetra Dharmsthala Trust SHG 22
Dharmsthala (Karnataka)
Rural
Development
Project
Bhartiya Samridhi Hyderabad Public Ltd. Company Diversified 87
Finance Ltd. (Andhra Pardesh) (NBFC)
Bandhan Kolkata Society JLG 385
(west Bengal)
Cashpor Micro Varanasi (U.P.) Section 25 Company JLG 247
Credit
Grama Vidiyal Tiruchirappalli Pvt. Ltd. Company JLG 126
Micro Finance (Tamilnadu) (NBFC)
Pvt. Ltd.
Grameen Banglore Pvt. Ltd. Company JLG 62
Financial Services (Karnataka) (NBFC)
Pvt. Ltd.
Madura Chennai Public Ltd. Company SHG 46
Microfinance Ltd. (Tamilnadu) (NBFC)
BSS Microfianace Banglore Pvt. Ltd. Company JLG 51
Pvt. Ltd. (Karnataka) (NBFC)
Equitas Chennai Pvt. Ltd. Company JLG 36
Microfinance (Tamilnadu) (NBFC)
India Pvt. Ltd.
Bandhan Kolkata Pvt. Ltd. Company JLG 171
Financial Services (West Bengal) (NBFC)
Pvt. Ltd.
Sarvodaya Nano Chennai Public Ltd. Company SHG
Finance Ltd. (Tamilnadu) (NBFC) 113
BWDA Finance Villupuram Public Ltd. Company SHG 25
Ltd. (Tamilnadu) (NBFC)
Ujjivan Financial Banglore Pvt. Ltd. Company JLG, Individual 96
Services Pvt. Ltd (Karnataka) (NBFC)
Future Financial Chittor (Andhra Public Ltd. Company SHG 50
Services Ltd. Pradesh (NBFC)
ESAF Thrissur (Kerala ) Pvt. Ltd. Company JLG 96
Microfinance & (NBFC)
Investment Pvt.
Ltd.
S.M.I.LE. Chennai Public Ltd. Company JLG 87
Microfinance Ltd. (Tamilnadu) (NBFC)

PRODUCTS AND SERVICES OF MFIs

Services Provided by MFIs(according to NABARD)

Broadly, MFIs provide all or some of the following financial services in different
combinations :
1. Savings
2. Credit for consumption, production, trade, services, housing, or other needs
3. Insurance or risk fund services
Fortunately, recognizing pent-up demand, mature MFIs are beginning to take concrete steps
toward expanding their product basket, at least within the context of financial services. Along
with credit, MFIs are heavily exploring the possibility of providing savings/deposit services,
micro-insurance and remittance services.

Particulars Products Purpose

Micro-enterprise /small business loan Working capital/business start-up

Agricultural Loan Crop/Farm-related

Existing Products Livestock Loan Dairy/Poultry

Consumption
General

New/Niche Education Loan Academic/vocational

Products
Housing Loan Home improvement/new home

The very same clients that the sector currently serves have a plethora of alternate needs for basic
products and services, financial and non-financial which can affect sustainable, long-term
achievements in their quality of life. Fortunately, recognizing this pent-up demand, mature MFIs
are beginning to take concrete steps toward expanding their product basket, at least within the
context of financial services. Along with credit, MFIs are heavily exploring the possibility of
providing savings/deposit services, micro-insurance and remittance services.

Portfolio Composition (MFIs)

Income generation activities -55 -60%

Animal husbandry -30% (dairy, sheep /goat rearing)
Agriculture -6-8%
Housing -2-3% (dwelling units, sanitation)
Consumption -2-3% (health, education)

SAVINGS
Access to a savings mechanism like that which is available through commercial banks, is usually
held by the microfinance industry to be the most urgent need to enhance the economic security of
the poor. Due to RBI regulations, Non Banking Microfinance Company (“NBFC”) MFIs cannot
currently accept interest-bearing deposits, unless they provide the service through a Section 25
Business Correspondent conduit. This structure prohibits the conduit from charging any fees to
execute this function and limits its reach within a limited radius of the bank branch. MFIs are
lobbying the RBI to relax these regulations to allow NBFCs to operate as business
correspondents, charge an extra fee for the deposit-taking service and delimit the geographical
reach of their operations. These changes would not only make deposits a viable commercial
product, but also allow MFIs to offer it to a broader set of clients.
INSURANCE
While credit can serve to enhance a household’s income, insurance can serve to cushion the
negative economic impact in the event of an emergency. Without insurance, a single incident can
often impoverish a household, even with access to micro-credit, especially if the emergency
affects the main earning members. A number of MFIs already offer micro-insurance products to
their clients. The most basic products insure against health and accidental death. Companies such
as Satin and BASIX usually tie the insurance products to their credit products, which makes the
availability of credit contingent on the client availing insurance. The rationale behind packaging
the loan and insurance together is that often clients do not understand the importance or benefit
of insurance until they face an emergency. From a commercial viewpoint, the MFI is in effect
insuring its loan against a crisis in the client’s household, since insurance hedges against total
financial collapse and thus ensures repayment of the loan, albeit in a delayed fashion. Similar to
customers, BASIX also links livestock loans to livestock insurance for a similar reason – it
cushions the financial blow and increases the likelihood of a successful loan recovery. We can
expect the number of insurance products available to increase as MFIs expand beyond their core
credit product
and clients become more aware of the benefits of insurance.

REMITTANCE
Domestic labor migration has a long history in India and is on the rise given disparities in growth
across states – migrants need a fast, low-cost, convenient, safe and widely accessible money
transfer service. In India, remittance services can be enabled by the provision of savings and thus
need to be provided in tie ups with banks and post offices. In some cases, MFIs provide
remittance services by establishing their presence in a migrant destination to channel remittances
back to the community in the migrants’ area of origin or by establishing a tie-up with another
MFI, bank or money transfer company in the area of origin. Going forward, the role of
technology will become more important in facilitating the development of alternative channels
and payment mechanisms.
NON-FINANCIAL PRODUCTS
The microfinance industry as a whole is now experimenting with a wide variety of potential
models that could be used to deliver non-financial services. For example, BASIX offers a host of
alternative services to its clients. Beyond the basket of credit and other financial products and
services, BASIX also provides low income customers with livelihood services, including
agricultural and business development consulting services, to help microfinance clients use their
loans more effectively. BASIX offers these alternative services to its clients
through different entities housed under one umbrella. These groups have tremendous synergy
and contribute to each other’s growth and prosperity. The credit business enables customer
acquisition, while the insurance business mitigates risk, and agricultural and business
development service enables customer retention. The consulting and IT business enhances
BASIX’s revenues, while the social businesses enable research and development which
contribute to BASIX’s strategy development. In addition to livelihood services, several MFIs are
examining the feasibility of providing critical basic services to deliver low cost healthcare,
education and vocational training. For example, Spandana is currently developing a
comprehensive low cost healthcare delivery model focused on the healthcare needs of women
and children. BASIX has launched a vocational training academy to impart education in rural
development and management to potential job seekers from low income communities.
Microfinance became a priority sector for banks due to high risk adjusted returns and many
banks (Private and Government) tied up with MFIs with varieties of services and products. Some
of these are,
 Lending wholesale loan funds.
 Assessing and buying out microfinance debt (securitization).
 Testing and rolling out specific retail products such as the Kissan (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.
 To know about impact of MFIs on Indian economy (Data only related to
SGHs)
To know the impact of microfinance on the Indian economy ,in this study four
standard are taken ,they are-
 Loan amount
 Savings in bank by SGHs
 No. Of SHGs linked with banks and MFIs
 Recover of loans
1. Loan amount in different year(Rs in crore)

particular 2007-08 2008-09 %growth 2009-10 %growth

s
Banks No. Of Amoun No. Of Amount SHG Amoun No. Of Amount SHG Amoun
loans SHGs t SHGs s t SHGs s t
122777 8849.6 160958 12253.5 31.1 38.5 158682 14453.3 1.4 17.9
disbursed
0 2 1 0
6 2
to SHGs

Banks No. Of Amoun No. Of Amount MFIs Amoun No. Of Amount MFIs Amoun
loans MFIs t MFIs t MFIs t
518 1970.1 581 3732.33 12.2 89.4 691 8062.74 18.9 116
disbursed
5
to MFIs

a. Share of loan amount to MFIs and SHGs

 100.00% 18.20% 23.34%
90.00% 35.80%
80.00%
70.00%
60.00%
Column1
50.00% 81.79% SHGs
76.65%
40.00% 64.19%
30.00%
20.00%
10.00%
0.00%
2007-08 2008-09 2009-10

Data Interpretation –
As per data the share of SHGs on total loan decrease year by year , in 2007-
08 it is 81.79%,2008-09 76.65% and 2009-10 64.19% but the share of MFIs
increase year by year. Whatever the loan amount increase in both the side.
b. Growth in loans amount
160%

140% 140.74% 140.84%

120% 116.00%
110.00%
100%
89.40% SHGs
80%
70.00% MFIs
60% SHGs+ MFIs

40% 36.00% 38.50%

20% 17.90%
0%
2007-08 2008-09 2009-10

Data Interpretation
 The loan amount increase for the model. In SHGs model it increase as 2007-08
36% ,2008-09 38.5% and 2009-10 17.90% and in MFIs model 2007-08 70% ,
2008-09 89.40% and in the year 2009-10 its growth rate is 116%. The total loan
amount growth rate is , in year 2007-08 110% , 2008-09 140.74% and 2009-10 it is
140.84%.
2. Savings in bank by SGHs(Rs. In crore)

Particulars 2007-08 2008-09 %growth 2009-10 %growth

Savings of SHGs 3785.39 5544.62 46.5 6198.71 11.8

with banks as on
31st March

a. Growth in savings of SHGs

SAVINGS
50%
45% 46.50%
40%
35% 37.00%
30% SAVINGS
25%
20%
15%
10% 11.80%
5%
0%
2007-08 2008-09 2009-10

Data Interpetaion –
 Savings of SGHs in banks growth treand is ,in year2007-08 37% ,2008-09 46.5% and
2009-10 11.80%.
3. No. Of SHGs linked with banks and No. Of browsers linked with MFIs

a. No. Of SHGs linked banks

Particular %
2007- 2008- growth 2009-10 %growth
s
2008-09
08 09 2009-10
4160584 5009794 20.4 6121147 22.2
No. Of
SHGs

SHGs
23.00%
22.80%
22.50%
22.20%
22.00%
21.50%
SHGs
21.00%
20.50% 20.40%
20.00%
19.50%
19.00%
2007-08 2008-09 2009-10

Data Interpetaion
The data shows a increase in SGHs no. The rate of join to the banks is
increase in nature. In the year 2007-08 its grow rate is 22.8% ,2008-09
20.4% and 2009-10 22.2%.

b. No. Of borrowers linked with MFIs ( in million)

 particulars 2007-08 2008-09 %growth 2009-10 %growth
2009-10
2008-09
No. Of 5 9 80 16 77.77
borrowers

No. of Borrowers
81.00%
80.00% 80%
79.00%
78.00% 78% No. of Borrowers
77.00%
76.00%
76%
75.00%
74.00%
73.00%
2007-08 2008-09 2009-10

Data Interpetaion
The no. Of borrowers is in increase in nature. Its growth rate is
different in year by year, in the year 2007-08 it was 75.6%,2008-09
80% and 2009-10 it is 77.7%.

4. Recovery of loans to MFIs and SHGs

 Agency Years Percentage Recovery
of loans range
Commercial Banks 2007-08 82-100
(Public
2008-09 70-100
and Private)
Regional Rural 2007-08 90-100
Banks 2008-09 87-100
Coop. Banks 2007-08 100
2008-09 NA

Data Interpetaion
The recovery by commercial Banks is 82 %-100% in the year 2007-08 and in 2008-09 it
was 70%-100%, It decrease to corresponding year. In the Regional Rural Banks ,it was
90%-100% in 2007-08 and 87%-100% in 2008-09 ,here it also in decrease in nature . for
the cooperative Banks it was 100% in the year 2007-08.

Effectiveness of Microfinance
 To know the effectiveness of microfinance ,in this study two state Rajasthan & Karnataka are
taken. Both state are measured on four following standard –
1. Loan disbursed
2. Savings of SHGs with Banks
3. Non Performing Assiets (NPAS) for Bank Loans to SHGS and Recovery Performance in
Rs. Lakh
4. MPI & MPPI index of the state

RAJASTHAN

Highlights

As on March 2007 As on March 2010 Annual Growth

Particulars
Number of SHGs reported 2 lakh 3.6 lakh 22%
Functional SHGs 1.6 lakhs 2.6 lakhs 18%

SHG Members 24 lakh 44 lakh 22%

Total Saving of SHGs Rs. 102 cr Rs. 450 crore 64%

Savings of SHGs as deposits Rs. 52.23 cr Rs. 180.18cr 51%

in Banks
SHGs with bank account 111248 217007 40%
SHGs Credit linked 137837 159161 15%
Outstanding credit to SHGs 250.04 crores 501crores 42%
Number of SHG federations 25 approx 42 federations and 312
clusters
Number of bank branches 4239 4655 2.45%
Number of MFIs 5 22 64%
Outstanding credit from. N.A Rs. 527 cr
MFI to clients
NA
 1. Loan disbursed to SHGs by banks(in Rs lakh)

Particulars 2008-09 2009-10 % growth

No. Of SGHs 26674 29687 11.29

Amount in Rs. lakh 16734.13 19172.25 14.56

2. Savings of SHGs with Banks

Particulars 2008-09 2009-10 % growth

No. Of SGHs 192479 213295 10.8

Amount in Rs. lakh 13837.49 14255.08 3.01

3. Non Performing Assets (NPAS) for Bank Loans to SHGS and Recovery
Performance in Rs. Lakh

Particulars Amount Amount %age

of Outstanding of Gross NPAs of
loans to NPAs outstanding
SHGs bank
loans to
SHGs
34799.36 2995.33 8.6
2008-09
46328.65 3750.63 8.10
2009-10
 4. MPI & MPPI index

Particulars 2008 2009

MPI 0.7 0.36

MPPI 0.88 0.46

KARNATAKA
Highlights(March 09)
Particulars
No of MFIs (HQ) in the State 21

No of MFIs (HQ and branches 27

Client Outreach 3,229,378

Portfolio Outstanding(in lakh Rs.) 2,148

Portfolio Outstanding(in us $ million) 457

1. Loan disbursed to SGHs by Banks

Particulars 2008-09 2009-10 %growth

No. Of SGHs 104151 134225 28.87

Amount in Rs. lakh 102039.59 113044.23 10.78

 2. Savings of SHGs with Banks

Particulars 2008-09 2009-10 %growth

Amount in Rs. Lakh 56686.54 62705.32 10.61

No. Of SHGs 457389 534588 16.87

3. Non Performing Assets (NPAS) for Bank Loans to SHGS and Recovery Performance in Rs. Lakh

Particulars Amount Amount %age

of Outstanding of Gross NPAs of
loans to NPAs outstanding
SHGs bank
loans to
SHGs
2008-09 247522.70 1976.55 0.8

2009-10 205530 33 4134.91 2.01

4. MPI & MPPI index

Particulars 2008 2009

MPI 2.15 1.94

MPPI 2.37 2.14

LIMITATIONS OF THE STUDY

There are certain limitations that every researcher has to face during the research period.
Following are some of them:-
 The research exercise will be conducted within a limited duration and a limited area. So a
detailed study cannot be possible.
 The findings and conclusions will base on knowledge and experience of the researcher
sometime may subject to bias
 Limited MFIs will include in analysis.
 Economy is very vast area and study will choose only selective area and data. .

ORGANISATION OF THE STUDY

The proposed study would be organized as under:

Chapter 1: Introduction
This would cover the introduction of microfinance. The study will further describe objectives to
be achieved, significance to the organizations to the researcher, focus of the study and describing
limitations of the study.

Chapter 2: Review of Existing Literature

A Literature review surveys article, books and other sources relevant to a particular issue, area of
research, or theory, different surveys conducted by researchers providing a description, summary
and critical evaluation of work. Thus, the purpose would be exploring significant literature
published on a proposed study.

Chapter 3: Research Methodology

This would include the nature of the proposed study, type and source of data collected all the
techniques to be use, methods, and procedure adopted and analysis pattern to carry out the
research.
Chapter 4: Analysis and Interpretation
Here data collected would be analyzed, edited, coded and tabulated with various graphical
techniques.
Chapter 5: Recommendations
This part would offer the suggestions for implementing various microfinance aspects.
Chapter 6: Conclusion
This will provide the end result of the proposed study, thereby defining the statement for which
reasons are offered.
Bibliography
The list of references at the end of a research report is bibliography. This would provide a list of
reference, material such as books and website explored for the research purpose.

BIBLIOGRAPHY
Books & Journals:

1. Acharya, Shankar : ‘Macroeconomic Management in the Nineties’,

Economic and Political Weekly, Vol. XXXVII, No. 16 pp 1515-38.
Reprinted in Acharya (2006)
2. ILO (2004b). India: An Inventory of Community-based Micro-
insurance Schemes, Strategies and Tools Against Social Exclusion and
Poverty (STEP), February 2004
3. Indian Economy: Current Status and Selected Issues’, Reserve Bank of
India Bulletin, February, Mumbai. (2005):
4. Jhabvala, R. and R. K. A. Subrahmanya (2000). The Unorganized
Sector: Work Security and Social Protection, Sage Publications, Delhi
5. Sen, Mitali (2008), “Assessing Social Performance of Microfinance
Institutions in India”, The ICFAI Journal of Applied Finance, Vol. 14,
No. 86, pp.77-86.
6. Srinivasan R. and Sriram, M.S. (2006), Microfinance in India:
Discussion, IIMB Management Review, pp.66-86.

Magazines & Newspapers:

1. India Today
2. Kurukshetra
3. The Bussiness Standard
4. The Economic Times
5. The Hindusthan times
6. The Times of India
7. Yojna

Websites:
1. http://en.wikipedia.org/wiki/Microfinance
2. http://www.coolavenues.com/know/fin/micro_1.php
3. http://www.microfinancefocus.com.
4. http://www.irdaindia.org
5. www.nabard.org.in