"A report On
MICRO FINANCE (ITS LIMITATIONS AN OPPORTUNITIES)
BY NISHANT BALI INTERFACE BROKERAGE AND RESEARCH LIMITED ENROLLMENT NO :( 08BS0000711)
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A report On
MICRO FINANCE (ITS LIMITATIONS AN OPPORTUNITIES)
COMPANY GUIDE: NAME: MR. HIMAL PARIKH (DIRECTOR) INTERFACE BROKERAGE AND RESEARCH LTD
FACULTY GUIDE: NAME: MR. SUNIL ARORA (FACULTY OF FINANCE) ICFAI BUSINESS SCHOOL, AHMEDABAD
NISHANT BALI ICFAI BUSINESS SCHOOL, AHMEDABAD ENROLLMENT NO.: 08BS0000711 Email ID: nishantbali86@yahoo.co.in CONTACT NO. 9898399031.
The report is submitted as partial fulfillment of the Requirement of MBA Program of IBS
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Acknowledgements
“No good work flows without the help from Faculty Members Industrial Professionals, Colleagues, Organization and Friends”
First of all I would like to thank Mr. Himal Parikh (M.D. , Director, Interface Brokerage and Research Ltd.) for providing me an opportunity to work in their team as summer trainee. I would also like to thank Mr. Hitesh Patel, Mr. Darshan Panchal and Ms. Jamini; employees of the company working in research department for their invaluable guidance, Cooperation and encouragement which helped me lot in my Summer Training. I am also thankful to my faculty in-charge Pof. Sunil Arora for his guidance and valuable input and advice during my project. I am also thankful to Mr. Sanjiv Rohilla (Asst. General Manager) NABARD, Mr. Arvind Parmar (Operation Manager) SAKHI, and Mr. Mukesh Gandhi (Director) Mass Financing, for their invaluable guidance and helped me in understanding my topic in depth. At the last, I would like to thank each individual who some or other way helped me to complete my project.
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ABSTRACT of the Project:
Micro-Finance refers to ―small savings, credit and insurance services extended to socially and economically disadvantaged segments of society, for enabling them to raise their income levels and improve living standards‖. The main aim of Micro-Finance is too provide loan to the poor people or to below poverty line, who are not able borrow from other sources and to make their living standard better.
Micro- finance‘s concept was first given by the Nobel laureate Prof. Mohammad Yunus in 1976 and started Grameen Bank in that year and from then many countries has followed Grameen Bank Model. It is not possible to cover each and every aspect of Micro Finance in this short duration of time. But I have tried to cover main and the basics of Micro Finance. Through this report any person who doesn‘t anything about Micro Finance can easily understands and makes decision on his own.
In this report I have tried to cover each and every important part related to the Micro Finance Sector i.e. Business Model of Grameen Bank, SHG‘s and how they formed, role of Micro Finance in the current economy, study about their interest rates, role of women in the economy, how the product is design, interview of NABARD executive and understand the Business Model of NABARD, and many important things related to Micro Finance.
After successfully completion of my project, I understood many areas of Micro Finance. Like how a company decides their interest rate, practically how SHGs formed, how the excess of government intervention can create disaster for the MFIs, practically felt, how a Micro loan can change the life of the individuals. Practical learning of Micro Finance industry by personal visits the institutions and prepared the business model of the same. Now I can confidently say that, with zero percentage o to 70 percentage knowledge in the field of Micro finance in just three months, it‘s like Achievement for me and I will add this moment in my Achievements lists. What I feel that, in this short period of time its difficult to understand the 100 percentage of the above mentioned subject. But at last I am satisfied with my performance.
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TABLE OF CONTENTS
ACKWOLEDGEMENT ………………………………………………………………………. 3
ABSTRACT …………………………………………………………………………………………………….. 4
Overview of the Microfinance Sector …………………………………………………………… 10
Top 50 Microfinance Institutions ………………………………………………………………… 12 Legal and Regulatory Framework for the (MFI’s) in India ………………………… 15 Societies Registration Act, 1860 …………………………………………………………… 15 Indian Trusts Act, 1882 ………………………………………………………………………. 15 Not-For-Profit Companies Registered Under Section 25 Of Companies Act, 1956………………………………………………………………………………………………….. 15 Ratio Analysis............................................................................................................... 16 Micro credit model ………………………………………………………………………………………… 20
Business Model of GRAMEEN Bank …………………………………………………………….. 21
About GRAMEEN Bank ………………………………………………………………………. 21 Working model of Grameen bank ………………………………………………………… 22 16 Decisions ……………………………………………………………………………………….. 24 The Repayment Mechanism …………………………………………………………………. 25 Criticism of Grameen Bank ……………………………………………………………………25 Self Help Group (SHG’s) ……………………………………………………………………….…,……26
Concept of SHGs ………………………………………………………………………….….…. 26 Need of SHG‘s ……………………………………………………………………………….…… 26 5
Structure of SHGs ………………………………………………………………………………. 27 Joint Liability Groups (JLGs)......................................................................31 Difference between SHGs and JLGs ……………………………………………………… 31 How JLGs formed ……………………………………………………………………………. …32 JLG features ……………………………………………………………………………………… .32 NABARD Initiative in Micro Finance ……..…………………………………………………….. 33
Introduction ………………………………………………………………………………………. 33 Role of NABARD …………………………………………………………………………………. 33 Organization Structure …………………………………………………………………………34 NABARD‘s OFFICES all over INDIA ………………………………………………………34 Financial Santa Clause NABARD ……………………………………………………………35 How NABARD helps Banks and MFI‘s in augmenting? …………………………….35 How NABARD manages their repayment ratio ………………………………………. 36 How NABARD gives loan to the Institutions? ………………………………………….36 Business Model of SAKHI ………………………………………………………………………………. 37 Introduction ……………………………………………………………………………………….. 37 Organization Structure …………………………………………………………………….…. 38 How SAKHI disburse the Loans? ………………………………………………………..…. 39 How they charges interest? ………………………………………………………………..…. 40 How SAKHI raise capital? …………………………………………………………………..… 40 Why SAKHI charges such a high rate of interest (18% p.a)? …………………..... 40 Is government waiver plan effected there Institution? ………………………….… 41
Business Model of MAS Finance ……………………………………………………………………. 43 Introduction …………………………………………………………………………………….… 43 Role and Function ………………………………………………………………………………. 43 Organization Structure ……………………………………………………………………… 44 How MAS FINANCE raise capital? ………………………………………………………..45 How MAS FINANCE manages their repayment structure ………………………. 45 MAS FINANCE has strange way of providing loan? ……………………………….. 45 Why MAS FINANCE charges such a high rate of interest (25-26%% p.a)? … 45 Any default case regarding to repayment of the loan? ……………………………..45
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Credit institutions as a Political tool: Debt relief in India ………………………. .46
Product Design ……………………………………………………………………………………………. .48
How MFI’s manage their repayment and Risk management …………………. ….49
What is Risk Management? ………………………………………………………………….49 Benefit of Risk Management ………………………………………………………………..49 Financial Risks ……………………………………………………………………………………51 Liquidity risk …………………………………………………………………………………. …..52 Operational Risks ………………………………………………………………………………..53 Strategic Risks …………………………………………………………………………………….53
Why micro finance provides loan to the women only ………………………………… 55
Why MFI‘s being critized for providing loans to the women only? …………….55
How the recent slowdown affects the MFI’s …………………………………………………..57 How the MFI‘s find opportunities within the crisis ………………………………..…58
MFI’s being criticized because of high interest rate …………………………………...59
Why Microcredit Rates are so high? ………………………………………………….…..59 Inappropriate comparison …………………………………………………………………...60 Rate Ceilings: Not the Answer ……………………………………………………………. ..61
SWOT Analysis of micro finance ……………………………………………………………….… 64
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SKS Case study………………………………………………………………………………...66 Development of Organization ……………………………………………………………. 66 Sources of Capital ……………………………………………………………………..……… 66 Organization & Management Analysis ………………………………………………… 68 Interview of end users …………………………………………………………………………….……70
Future of Micro Finance……………………………………………………………….……72
Recommendations and Suggestions ……………………………………………….… 74
Conclusion ………………………………………………………………………………….…..75
References …………………………………………………………………………………………….…......76
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List of Illustration (Figures)
Top fifty MFIs (Micro Finance Institutions) ………………………………………………….….12 Comparison among the Companies ……………………………………………………………….…18 Comparative Analysis of Microfinance Services Offered To the Poor …………………..28 Year wise increase of SHG‘s and their finance …………………………………………….…....29 Growth of linked SHG's in 13 Priority States ……………………………………………………..30 Organizational structure of NABARD …………………………………………………………….…34 NABARD‘s offices all over India ………………………………………………………………….…...34 Organization Structure of SAKHI ………………………………………………………………….…38 Business plan projection of SAKHI ……………………………………………………….………….41 Projected balance sheet of SAKHI ………………………………………………………….…….....42 Organization Structure of MAS Finance ……………………………………………………………44 The Corposol/Finansol Crisis …………………………………………………………….….………..50 Major Risks to Microfinance Institutions ………………………………………………………….51 General Impact of Ceilings on Microcredit Interest Rates …………………………………..62 Operation and Financial function of SKS………………………………………………………… …67
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Overview of the Microfinance Sector
Micro-finance refers to ―small savings, credit and insurance services extended to socially and economically disadvantaged segments of society, for enabling them to raise their income levels and improve living standards‖. India‘s population is more than 1000 million, and it‘s the second largest in term of population after China. India's GDP ranks among the top 15 economies of the world. However, around 300 million people or about 80 million households, are living below the poverty line, i.e. less than $2 per day according to the World Bank and the poorest are which earns $1 per day . It is further estimated that of these households, only about 20% have access to credit from the formal sector. Out of these 80 million house hold, 80% takes credit from the informal sources i.e. local Zamidars, Chit Funds etc. With about 80 million households below poverty line and 80% out of this is access from informal sector, so it‘s obvious to solve this problem and this gave birth to Micro Finance Institutions (MFI‘s). MFIs include nongovernmental organizations (NGOs), credit unions, non-bank financial intermediaries, and even a few commercial banks. India has about 153,000 retail outlets of the formal banking infrastructure—commercial banks…There are about 33,000 banks in rural areas, and also have special category of banks called regional rural banks, in the abbreviated form, RRBs. There are about 14,500 branches and the cooperatives…The cooperatives—about 100,000 retail outlets…the population for the regional outlet comes down to as low as 4,700. Annual credit demand by the poor in the country is estimated to be about Rs 60,000 crores. In the Indian context terms like "small and marginal farmers", " rural artisans" and "economically weaker sections" have been used to broadly define micro-finance customers. Women constitute a vast majority of users of micro-credit and savings services. In short, Micro Finance means providing very poor families with very small loans to help them engage in productive activities or grow their very small businesses. It is firstly (and this is essential) a tool in the fight against poverty. It is not for poor people in general but for poor people who are considered to be economically active, in other words, those who carry out activities which generate revenues which in turn allow them to cover their needs and those of their families, even if these revenues are low and precarious. Microfinance offers to help them get started by giving them access to financial services from which they are generally excluded (including savings and credit facilities, insurance and fund transfers), and in ways that are suited to their economic and management skills. Ultimately, the goal of microfinance is to give low income people an opportunity to become selfsufficient by providing a means of saving money, borrowing money and insurance.
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Micro financing is not a new concept. Small microcredit operations have existed since the mid 1700s. Although most modern microfinance institutions operate in developing countries, the rate of payment default for loans is surprisingly low - more than 90% of loans are repaid. 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.
Microcredit, Microfinance and Micro plus?
Microcredit refers specifically to loans and the credit needs of clients, while Microfinance covers a broader range of financial services that create a wider range of opportunities for success. Examples of these additional financial services include savings, insurance, housing loans and remittance transfers. The local MFI might also offer Microfinance plus activities such as entrepreneurial and life skills training, and advice on topics such as health and nutrition, sanitation, improving living conditions, and the importance of educating children
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Top 50 MICROFINANCE INSTITUTIONS :( as on 20/3/09)
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 25 26 27 Name ASA Bandhan (Society and NBFC) Banco do Nordeste Fundación Mundial de la Mujer Bucaramanga FONDEP Micro-Crédit Amhara Credit and Savings Institution Banco Compartamos, S.A., Institución de Banca Múltiple Association Al Amana for the Promotion of Micro-Enterprises Morocco Fundación Mundo Mujer Popayán Fundación WWB Colombia - Cali Consumer Credit Union 'Economic Partnership' Fondation Banque Populaire pour le Micro-Credit Microcredit Foundation of India EKI Saadhana Microfin Society Jagorani Chakra Foundation Grameen Bank Partner Grameen Koota Caja Municipal de Ahorro y Crédito de Cusco Bangladesh Rural Advancement Committee AgroInvest Caja Municipal de Ahorro y Crédito de Trujillo Sharada's Women's Association for Weaker Section MIKROFIN Banja Luka Khan Bank (Agricultural Bank of Mongolia LLP) INECO Bank Fondation Zakoura Country Bangladesh India Brazil Colombia Morocco Ethiopia Mexico Morocco Colombia Colombia Russia Morocco India Bosnia and Herzegovina India Bangladesh Bangladesh Bosnia and Herzegovina India Peru Bangladesh Serbia Peru India Bosnia and Herzegovina Mongolia Armenia Morocco Risk 56 42 213 193 196 118 295 133 141 155 19 219 7 242 73 128 100 230 156 222 126 222 220 55 205 280 202 194 Returns 40 1 25 1 1 42 11 1 1 4 1 1 185 1 1 1 62 1 1 119 205 1 101 13 1 59 39 1
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Dakahlya Businessmen's Association for Community Development Asmitha Microfin Ltd. Credi Fe Desarrollo Microempresarial S.A. Dedebit Credit and Savings Institution MI-BOSPO Tuzla Fundacion Para La Promocion y el Desarrollo Kashf Foundation Shakti Foundation for Disadvantaged Women enda inter-arabe Kazakhstan Loan Fund Integrated Development Foundation Microcredit Organization Sunrise FINCA - ECU Caja Municipal de Ahorro y Crédito de Arequipa Crédito con Educación Rural BESA Fund SKS Microfinance Private Limited Development and Employment Fund Progra..."
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