MICRO FINANCE

1. MICRO FINANCE

2. OUTLINE • CONCEPT • HISTORY • MICRO FINANCE IN INDIA • LEGAL STRUCTURES OF MFI IN INDIA • ROLE IN POVERTY ALLEVIATION • MICRO FINANCE MODELS

3. CONCEPT: MICRO FINANCE • MICRO FINANCE refers to the provision of financial services to low-income clients, including consumers and the self-employed. • It includes financial services as such deposits, loans, payment services, money transfers, insurance to poor and low-income households. • Micro finance services are provided by: Formal Institution (Rural and cooperative banks) Semi-formal Institution (NGOs) Informal Sources (Moneylenders and shopkeepers)

4. Contd… • It refers to a movement that envisions “a world in which poor have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. • Two overlapping categories of micro financing are: Poverty Lending Micro Banking

5. history • Professor Yunus founded his Grameen Bank in 1976 i.e. first MICROFINANCE institute. • Microfinance were used in the academic literature before the 1980s or 1990s, the concept of providing financial services to low income people is much older. • While the emergence of informal financial institutions in Nigeria dates back to the 15th century, they were first established in Europe during the 18th century as a response to the enormous increase in poverty since the end of the extended European wars.(1618 –1648). • Today it has 6.6 million borrowers of whom 97% are women.

6. Micro Finance in india Evolution of Micro finance in India: • Micro finance has been in practice for ages ( though informally). • Reserve Bank of India Act, 1934 provided for the establishment of the Agricultural Credit Department. • Nationalization of banks in 1969. • Regional Rural Banks created in 1975. • Established as an apex agency for rural finance in 1982.

7. LEGAL STRUCTURE OF MICRO FINANCE IN INDIA Micro Finance Institutions consists of: 1. As Charitable Institution- • These societies are registered under Societies Registration Act, 1860. • Trusts are registered under Trust Act, 1882. • They are not allowed to raise equity and mobilize deposits. • Such restrictions limit the availability of capital to these MFIs.

8. CONTD… 2. As Co-operatives – • The cooperatives have legal sanction to work as financial intermediaries. • It is controlled by controlling authority, Registrar of the Cooperative Societies and State Government National Cooperatives. • They can raise share, mobilize deposits and no tax is charged.

9. CONTD… 3. As Companies- • It requires initial fund of Rs.2 crore. • To obtain operating registration certificate from RBI. • They are allowed to mobilize deposits after satisfying conditions stipulated by RBI. • Allowed to collect foreign equity upto 51%

10. CONTD… 4. As Banking Institutions- • It requires initial fund from 100-300 crore. • It is regulated by RBI on daily affairs. • These are allowed to deliver credit, mobilize savings and to give insurance (under the regulation of IRDA). • Highly management and technology intensive.

11. ROLE in poverty alleviation • Provides small loans to start a business. • Provides housing finance. • Inculcates habit of savings among the poor people. • Do not demand any security while granting loans • Charges very low rate of interest.

12. Micro finance models • Self Help Groups (SHG) Models • Federated SHG Models • Grameen Bank Models • Cooperatives Models

13. Contd… 1.Self Help Groups: • It has emerged as the “INDIAN” model of micro finance. • This has emerged as the capacity building of community based institution. • Small and informal groups. • Composed either by male only or by female only. • Members are self-selected. • Acts as a facilitating agency. • Main motive of SHG is to empower poor socio-economically and improve livelihood.

14. Contd… 2.Federated SHG: • It comes under Societies Registration Act. • Comprises of1000-3000 members. • It is a three-tier structure. • Credit giving pattern also vary. • Federations provide insurance and housing finance and provide bridge loans.

15. Contd… 3.Grameen Bank: • Homogeneous group of 5 members at village level. • Undergo 7 days compulsory training of 1-2hrs per day. • Provides various loans such as general loan, supplementary loan, special general, sanitation and housing loan, etc. • Loan repayable in 52 equal installments within a year. • Bank charges 5% tax on productive loans.

16. CONTD… 4.Cooperative Model: • The primary entities of CDF’s micro finance cooperative are the women’s /men’s thrift cooperative. • The WTC or MTC are divided into small groups ( 10-50 members) to facilitate better monitoring of thrift and repayment of loans . • The group members nominate a group leader and the leader enjoys the confidence of the group. • The general body constitutes of all the members of the primary cooperatives. The general body meets once in a year to elect the directors, review and discuss the other issues.

17. Contd… • The Association provides training, management of the loan insurance fund and inter-lending. It also plays a support role by helping the member cooperatives in handling accounting, auditing and other administrative matters.