All about micro finance

1. MICRO FINANCE

2. • Microfinance is defined as any activity that includes
the provision of financial services such as credit,
savings, and insurance to low income individuals
which fall just above the nationally defined poverty
line, and poor individuals which fall below that
poverty line, with the goal of creating social value.

3. • 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”.

4. The modern use of the expression
"micro-financing" has roots in the
1970s when Dr. Muhammad Yunus
started Grameen Bank in Bangladesh

5. MICRO FINANCE AND MICRO CREDIT
Micro finance refers to loans, savings,
insurance, transfer services and other financial
products targeted at low-income clients.
Micro credit refers to a small loan to a client
made by a bank or other institution. Micro
credit can be offered, often without collateral,
to an individual or through group lending.

6. Types of MFIs
• MFIs include non-governmental organizations (NGOs), credit unions,
non-bank financial intermediaries, and even a few commercial
banks.
• Classification:
• Not for Profit MFIs
• NGO-MF
• Non-Profit Companies
• Mutual Benefit MFIs
• Mutually Aided Cooperative Societies (MACS) and set up
institutions.
• For Profit MFIs
• Non-Banking Financial Companies ( NBFCs)

7. Who are the clients of micro finance?
• Low-income persons that do not have access to
formal financial institutions
• Micro finance clients are typically self employed,
often household based entrepreneurs
• In rural areas, they are usually small farmers and
others who are engaged in small income-
generating activities such as food processing and
petty trade
• In urban areas, micro finance activities are more
diverse and include shopkeepers, service
providers, artisans, street vendors

8. Characteristics
• Loan given without security
• Loans to those people who live below the poverty line
• Members of SHGs may benefit from micro finance
• Maximum limit of loan under micro finance ₨25,000/-
• Terms and conditions offered to poor people are decided
by NGOs
• Microfinance is different from Microcredit- under the
latter, small loans are given to the borrower but under
microfinance alongside many other financial services
including savings accounts and insurance. Therefore,
microfinance has a wider concept than microcredit.

9. The Need in India
• ·India is said to be the home of one third of the
world’s poor; official estimates range from 26
to 50 percent of the more than one billion
population.
• About 87 percent of the poorest households do
not have access to credit.

10. How to Apply Micro Loans
• Prospective borrowers are required to submit basic
information requirements (e.g. bio-data, business
papers, financial statements, collateral offered,
usage of loan)
• Credit & background checking
• Collaterals offered (if applicable) are appraised to
determine loan able value
• Other pertinent information are gathered about the
borrower
• If eligible, credit evaluation report is made for
approval

11. Strength
• Reliable business model.
• Reduces poverty
• Attract investors looking to spread risks and diversify their
portfolios.
• Focus on consumer protection, transparency, and governance
• Strong support from banks & NGOs who are able to access bulk
funds for on-lending.
• Huge networking available.
• SHG bank linkages- widely adopted approach involving bank,
NGOs & poor

12. Weaknesses
• Not properly regulated.
• High interest rate than the rates charged on normal bank
loans.
• High transaction cost
• Large segment is still untouched due to access problem.
• Many poor still prefers informal providers (local
Zamindars, Chit Funds) of finance which charge at a
high interest rate.
• Many places in States such as Uttar Pradesh, Bihar and
Madhya Pradesh are under-served.
• Loan fatigue- poor recovery

13. Opportunities
• Rate ceilings from Govt.
• Huge demand and supply gap
• Huge potential & heavy need for this market.
• Participation of private industries and institutions.
• Inclusion of innovative models and initiative
• • Employment Opportunity
• Opportunity for Pvt. Banks
• Government should encourage competition, capacity
building, and innovation to lower interest rates, and
costs in microfinance.

14. Threats
• Global financial storm
• Uncertain regulatory future due to the underlined
concerns.
 High Competition policies and procedures of central
bank which might pose hurdles to poor people
 Risks to MFIs – Credit risk, Operational risk,
strategic risk, liquidity risk, market risk, fraud and
legal risks, reputation risk
 Over involvement of Government

15. THANK YOU