A PROJECT REPORT ON

MICRO-FINANCE INSTIUTIONS IN IDNIA

SUBMITTED BY
SMIT GANDHI
TY BFM (SEM V)
ROLL NO 15

UNDER THE GUIDANCE OF

MR. PRATHAMESH TAWADE

S K SOMAIYA COLLEGE OF ARTS, SCIENCE AND COMMERCE

TO THE
UNIVERSITY OF MUMBAI
IN PARTIAL FULFILLMENT OF
BACHELOR OF COMMERCE
(FINANCIAL MARKETS)
2015-2016

ACKNOWLEDGEMENT
One of the pleasant aspects of preparing a project report is the
opportunity to thank to those who have contributed to make the project
completion possible. I am extremely thankful to Mr. Prathamesh Tawade
my project guide & Mrs. Shruti Charvarkar my course co-ordinator &
Mrs Sangeeta kohli our college principal.
Their active interest in the project and insights helped us formulate,
redefine and implement our approach towards the project I am also
thankful to all those seen and unseen hands & heads, which have been of
direct or indirect, help in the completion of this project study.

SR. NO

TOPIC

PAGE
NO

ACKNOWLEGEMENT

INTRODUCTION TO THE PROJECT

5-8

1.1

EXECUTIVE SUMMARY

1.2

OBJECTIVE OF THE PROJECT

1.3

LIMITATIONS OF THE PROJECT

1.4

METHODOLOGY

INTRODUCTION TO MICRO FINANCE

10-28

2.1

WHAT IS MICRO FINANCE

10

2.2

HISTORY OF MICRO FINANCE

14

2.3

WHAT IS A MICRO FINANCE INSTIUTUION

17

IMPORTANCE OF GRAMEEN BANK IN MICRO FINANCE

2.4

INDUSTRY

20

2.5

ADVANTAGE OF MICRO FINANCE

22

2.6

DISADVANTAGE OF MICRO FINANCE

24

2.7

CORE VALUES IN MICRO FINANCE

27

MICRO FINANCE IN INDIA

30-41

3.1

EVOLUTION OF MICRO FINANCE IN INDIA

30

3.2

ENTITIES IN MICRO FINANCE

34

3.3
3.4

WHO ARE THE CLIENTS OF MICRO FINANCE & WHAT

ARE THEIR NEEDS

36

ACTIVITIES IN MICRO FINANCE

40

CURRENT STATUS OF MICRO FINANCE IN INDIA

43-54

4.1

PRESENT SCENARIO OF MICRO FINANCE IN INDIA

43

4.2

LEGAL RULES & REGULATIONS

45

4.3

NON PRUDENTIAL REGULATIONS

54

TYPES OF MICRO FINANCE MODELS & ORGANIZATION

IN INDIA

56-65

5.1

MICRO FINANCE MODELS IN INDIA

56

5.2

TYPES OF ORGANIZATION IN MICRO FINANCE IN INDIA

64

WHAT DOES MICRO FINANCE MEAN FOR GENERAL

PUBLIC?

67

RECOMMENDATIONS & CONCLUSION

70-75

7.1

RECOMMENDATION FOR MICRO FINANCE

70

7.2

CONCLUSION

73

INTRODUCTION
TO
THE
PROJECT

Executive summary
Microfinance is defined as an activity that includes the provision of financial services such as
credit, savings, and insurance to low income individuals, the activity done by micro finance is

same activities which are carried on by the commercial bank, for the common people. Micro
finance is a new concept in India & this concept is not widely used due to certain limitations like
regulations by NABARD & RBI.
In India the people who live below the poverty line cannot access banks for the purposes like
savings or borrowing loans. To give same facilities which are provided by commercial bank
Micro finance institution came to existence which give same services to poor people which are
provided by commercial banks.
The services provided by Microfinance Institution are like as follows:
1
2
3
4

Micro credit
Micro leasing
Micro savings
Money transfer

As India is the only country who has most of the population below the poverty line Micro
finance becomes essential as the main motive for the existence of micro finance is to eliminate
poverty & to increase the standard of living of the people. Micro finance in India can be used as
an important tool which can help to eradicate poverty in India & increase the standard of living
of people.
The need of Micro finance in India is due to the following reasons

People living below the poverty line

Poor people cannot access commercial banks
Poor People cannot get loans as they have no collateral

Due to this above reason Micro finance is suitable in India as micro finance institutions give
loans to poor people without collateral & the size of loan is $100 given by the micro finance
institution.

OBJECTIVE OF THE PROJECT

The main objective of the project is that Micro-Finance is a new concept in

India & many people dont know how this concept came to existence.
Through this project we can learn what is a micro finance, what is the system
framework, what is a micro finance institution, its principles What are the
legal rules & regulations framed by RBI for micro-Finance institutions,
advantages, disadvantages& need for micro finance in India.

Limitations of the project

A study of this type cannot be without limitations. It has been observed those
micro finance institutions are
This

attitude

is

very

secretive

about

their

investments.

a major hindrance for data collection. However micro

finance institutions that are registered under RBI are to be included in the
study.

Methodology of Data

The data of this project has been collected from various internet websites like Wikipedia &
various newspaper articles like Times of India, & also from the books like All about Micro
finance & Micro finance & women empowerment.

INTRODUCTION
TO
MICRO-FINANCE

What is Micro-Finance?
The dictionary meaning of finance is management of money. The management of money
denotes acquiring & using money. Micro Finance is buzzing word, used when financing for
micro entrepreneurs. Concept of micro finance is emerged in need of meeting special goal to
empower under-privileged class of society, women, and poor, downtrodden by natural reasons or
men made; caste, creed, religion or otherwise.
The principles of Micro Finance are founded on the philosophy of cooperation and its central
values of equality, equity and mutual self-help. At the heart of these principles are the concept of
human development and the brotherhood of man expressed through people working together to
achieve a better life for themselves and their children.
Traditionally micro finance was focused on providing a very standardized credit product. The
poor, just like anyone else, (in fact need like thirst) need a diverse range of financial instruments
to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we
see a broadening of the concept of micro finance--- our current challenge is to find efficient and
reliable ways of providing a richer menu of micro finance products.
Micro Finance is not merely extending credit, but extending credit to those who require most for
their and familys survival. It cannot be measured in term of quantity, but due weightage to
quality measurement.
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.

The creation of social value includes poverty alleviation and the broader impact of improving
livelihood opportunities through the provision of capital for micro enterprise, and insurance and
savings for risk mitigation and consumption smoothing. A large variety of sectors provide
microfinance in India, using a range of microfinance delivery methods.
Microfinance is the supply of loans, savings and other financial services to the poor. The term
micro is in reference to the small amounts typically involved in the practice. These services are
small micro because a person who does not have a lot of money most likely will not need a
loan of several thousand dollars.
However, a loan of a few hundred dollars may make a huge difference in their lives, giving them
the ability to purchase livestock for a small farm, a sewing machine to help make accessories and
clothes, or supplies for a small store.
Microfinance is a source of financial services for entrepreneurs and small businesses lacking
access to banking and related services. The two main mechanisms for the delivery of financial
services to such clients are: (1) relationship-based banking for individual entrepreneurs and small
businesses; and (2) group-based models, where several entrepreneurs come together to apply for
loans and other services as a group.
For some, microfinance 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. Many
of those who promote microfinance generally believe that such access will help poor people out
of poverty
The goal of microfinance was the alleviation of poverty. For many years, microfinance had this
primary social objective and so traditional MFIs consisted only of non-governmental
organizations (NGO), specialized microfinance banks and public sector banks. More recently, the
marketplace has been evolving.

Since the ICICI Bank in India, various actors have endeavoured to provide access to financial
services to the poor in creative ways. Governments also have piloted national programs, NGOs
have undertaken the activity of raising donor funds for on-lending, and some banks have
partnered with public organizations or made small inroads themselves in providing such services.
This has resulted in a rather broad definition of microfinance as any activity. The main objective
of micro- finance is to give small loans to people for their business start-up without any collateral
or other security. Micro- finance has helped to eradicate poverty in many developed countries
like Bangladesh where Grameen Bank has offered credit to hierarch of people formerly
underserved: women, the poor, unemployed and illiterate people.
Access to credit is based on reasonable terms, example as the group lending system and weeklyinstalment payments, with reasonably long terms of personal loans, enable the poor to build on
their skills to earn higher income in each cycle of personal loans.
The main objective of micro- finance is to promote financial independence among the poor.
Micro- finance encourages all borrowers to become savers, so that their capital will be converted
into new loans to others. Micro- finance targets the poorest of the poor, with a particular
emphasis on women. They receive 95% of the Grameen banks loans.
They had less access to financial alternatives of incomes and ordinary credit lines. Women
traditionally were seen to have an inequitable share of power in household decision making
Micro- finance have found that lending to women generates good effects, including
empowerment of a marginalized segment of society.

RURAL
DEVELOPMENT

LITERACY

ENTREPRENEUR

MICRO FINANCE

EMPOWERMEN
T

POVERTY
ELIMINATION

HIGHER
STANDARD OF
LIVING

RISE IN RURAL
DEMAND

EMPLOYMENT

History of Micro-Finance
The concept of microfinance is not new. Savings and credit groups that have operated for
centuries include the "susus" of Ghana, "chit funds" in India, "tandas" in Mexico, "arisan" in
Indonesia, "cheetu" in Sri Lanka, "tontines" in West Africa, and "pasanaku" in Bolivia, as well as
numerous savings clubs and burial societies found all over the world.
Formal credit and savings institutions for the poor have also been around for decades, providing
customers who were traditionally neglected by commercial banks a way to obtain financial
services through cooperatives and development finance institutions.
One of the earlier and longer-lived micro credit organizations providing small loans to rural poor
with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and
nationalist Jonathan Swift. Swift's idea began slowly but by the 1840s had become a widespread
institution of about 300 funds all over Ireland. Their principal purpose was making small loans
with interest for short periods. At their peak they were making loans to 20% of all Irish
households annually.
In the 1800s, various types of larger and more formal savings and credit institutions began to
emerge in Europe, organized primarily among the rural and urban poor. These institutions were
known as People's Banks, Credit Unions, and Savings and Credit Co-operatives. N Indonesia, the
Indonesian People's Credit Banks (BPR) or The Bank Perkreditan Rakyat opened in 1895.
The BPR became the largest microfinance system in Indonesia with close to 9,000 units. In the
early 1900s, various adaptations of these models began to appear in parts of rural Latin America.
While the goal of such rural finance interventions was usually defined in terms of modernizing
the agricultural sector, they usually had two specific objectives: increased commercialization of
the rural sector, by mobilizing "idle" savings and increasing investment through credit, and
reducing oppressive feudal relations that were enforced through indebtedness.

In most cases, these new banks for the poor were not owned by the poor themselves, as they had
been in Europe, but by government agencies or private banks. Over the years, these institutions
became inefficient and at times, abusive.
Between the 1950s and 1970s, governments and donors focused on providing agricultural credit
to small and marginal farmers, in hopes of raising productivity and incomes. These efforts to
expand access to agricultural credit emphasized supply-led government interventions in the form
of targeted credit through state-owned development finance institutions, or farmers' cooperatives
in some cases, that received concessional loans and on-lent to customers at below-market interest
rates.
These subsidized schemes were rarely successful. Rural development banks suffered massive
erosion of their capital base due to subsidized lending rates and poor repayment discipline and
the funds did not always reach the poor, often ending up concentrated in the hands of better-off
farmers.
The history of micro-financing can be traced back as long to the middle of the 1800s when 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 a big impact.
The today use of the expression micro-financing has its 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 1970s is 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 1974 in Chicago.
An economical historian at Yale named Timothy Guinnane has been doing some research on
Friedrich Wilhelm Raiffeisens village bank movement in Germany which started in 1864 and by
the year 1901 the bank had reached 2million rural farmers. Timothy Guinnane means that
already then it was proved that microcredit could pass the two tests concerning peoples payback
moral and the possibility to provide the financial service to poor people.
Another organization, the caisse populaire movement grounded by Alphone and Dorimne
Desjardins in Quebec was also concerned about the poverty, and passed those two tests between
1900 to 1906 when they founded the first caisse they passed a law governing them in the Quebec
assembly, they risked their private assets and must have been very sure about the idea about
microcredit.
Today the World Bank estimates that more than 16 million people are served by some 7000
microfinance institutions all over the world. CGAP experts means that about 500 million families
benefits from these small loans making new business possible. In a gathering at a Microcredit
Summit in Washington DC the goal was reaching 100 million of the worlds poorest people by
credits from the world leaders and major financial institutions.
Historical context can help explain how specialized MFIs developed over the last few decades.
Between the 1950s and 1970s, governments and donors focused on providing subsidized
agricultural credit to small and marginal farmers, in hopes of raising productivity and incomes.
During the 1980s, micro-enterprise credit concentrated on providing loans to poor women to
invest in tiny businesses, enabling them to accumulate assets and raise household income and
welfare. These experiments resulted in the emergence of nongovernmental organizations (NGOs)
that provided financial services for the poor.

MICRO
CREDIT

MICRO
INSURAN
CE

MICRO
LEASING

MICRO FINANCE

MONEY
TRANSFE
R

INSTITUTION

What is a Micro-Finance Institution?

MCRO
SAVINGS

A microfinance institution (MFI) is an organization that provides microfinance services loans,

savings, maybe even insurance which are not accessible to poor people in traditional financing
institutions. An MFI can operate as a non-profit such as a non-government organization (NGO),
credit cooperative, non-bank financial institution (NBFI), or even a formal, regulated for profit
bank. Micro- finance institutions (MFIs) are the organizations which provide various microfinance products and services the products and services provided by microfinance institution
(MFI) are as follows:
MFIs differ in size and reach; some serve a few thousand clients in their immediate geographical
area, while others serve hundreds of thousands, even millions, in a large geographical region,
through numerous branches. Many MFIs offer services beyond loans and savings, including
education on business and financial issues and social services focused on health and children.
Historical context can help explain how specialized MFIs developed over the last few decades.
Between the 1950s and 1970s, governments and donors focused on providing subsidized
agricultural credit to small and marginal farmers, in hopes of raising productivity and incomes.
During the 1980s, micro-enterprise credit concentrated on providing loans to poor women to
invest in tiny businesses, enabling them to accumulate assets and raise household income and
welfare. These experiments resulted in the emergence of nongovernmental organizations (NGOs)
that provided financial services for the poor. In the 1990s, many of these institutions transformed
themselves into formal financial institutions in order to access and on-lend client savings, thus
enhancing their outreach."
Microfinance institutions are perhaps one of the most important vehicles to reach the rural poor.
These institutions can act as very important tool to provide the rural entrepreneurs with microloans, which will help them to start their own businesses and sustain them. One advantage that
these institutions have over other financial services delivery vehicles is the focus.
There are many examples of MFIs that has done some stellar work in this area such as ACCION
International, BancoSol and Grameen Bank. These institutions have helped many people in
enhancing their lives and achieving a decent social status in the societies that they are living in.
The key advantages that they have over the other forms of microfinance are:

Advantages of Micro- Finance.

Microfinance involves extending small loans, savings and other basic financial services to people
that dont currently have access to capital. Its a key strategy in helping people living in poverty
to become financially independent, which helps them become more resilient and better able to
provide for their families in times of economic difficulty. Here are the benefits of microfinance:
1. Access Banks simply wont extend loans to those with little or no assets, and generally dont
engage in the small size of loans typically associated with micro-financing. Micro-financing is
based on the philosophy that even small amounts of credit can help end the cycle of poverty.
2. Better loan repayment rates Microfinance tends to target women borrowers, who are statistically
less likely to default on their loans than men. So these loans help empower women, and they are
often safer investments for those loaning the funds.
3. Extending education Families receiving micro-financing are less likely to pull their children out
of school for economic reasons.
4. Improved health and welfare Micro-financing can lead to improved access to clean water and
better sanitation while also providing better access to health care.
5. Sustainability Even a small working capital loan of $100 can be enough to launch a small
business in a developing country that could help the benefactor pull themselves and their family
out of poverty.
6. Job creation Micro-financing can help create new employment opportunities, which has a
beneficial impact on the local economy.
7. Micro- finance targets rural areas as majority of population which is poor in India lives in rural
areas.

Disadvantage of Micro-Finance

1. Financial illiteracyOne of the major hindrances in the growth of the microfinance sector is the financial illiteracy of
the people. This makes it difficult in creating awareness of microfinance and even more difficult
to serve them as microfinance clients. Though most of the microfinance institutions claim to
have educational trainings and programmers for the benefit of the people, according to some of
the experts the first thing these SHG and JLG members are taught is to do their own signature.
The worst part is that many MFIs think that this is what financial literacy means. We all know
how dangerous it can be when one doesnt know how to read but he/she knows how to accept or
approve it (by signing it).

2. Inability to generate sufficient fundsInability of MFIs to raise sufficient fund remains one of the important concern in the
microfinance sector. Though NBFCs are able to raise funds through private equity investments
because of the for-profit motive, such MFIs are restricted from taking public deposits. Not-forprofit companies which constitute a major chunk of the MFI sector have to primarily rely on
donations and grants from Government and apex institutions like NABARD and SIDBI. In
absence of adequate funding from the equity market, the major source of funds for MFIs are the
bank loans, which is the reason for high Debt to Equity ratio of most MFIs.

3. Dropouts and Migration of group membersMajority of the microfinance loans are disbursed on group lending concept and a past record of
the group plays an important role in getting new loans either through SHG-Bank linkage or
through MFIs. The two major problems with the group concept are dropouts and migration.
4. Interest Rates-

One of the principal challenges of microfinance is providing small loans at an affordable cost.
The global average interest and fee rate is estimated at 37%, with rates reaching as high as 70%
in some markets. The reason for the high interest rates is not primarily cost of capital. Indeed, the
local microfinance organizations that receive zero-interest loan capital from the online micro
lending platform. The high costs of traditional microfinance loans limit their effectiveness as a
poverty-fighting tool.

5. Use of Loans
Practitioners and donors from the charitable side of microfinance frequently argue for restricting
micro credit to loans for productive purposessuch as to start or expand a micro enterprise.
Those from the private-sector side respond that because money is fungible, such a restriction is
impossible to enforce, and that in any case it should not be up to rich people to determine how
poor people use their money.

6. Lack of Capacity to PromoteAfter a group has been promoted, continuous efforts are needed to monitor these groups and
strengthen their internal capacity to undertake administrative tasks (accounting, meeting minutes,
correspondence, and negotiations with bankers) and commercial activities (business start-ups,
marketing, and reinvestment.
7. Regulatory ReasonsDue to regulatory reasons, only a handful of microfinance institutions (MFIs) were able in
promoting mutual savings among groups and a few NGO MFIs offer savings services by taking
deposits from their members. Others have had to use mutual benefit trusts or mutually aided
cooperative societies (MACS). Only the SEWA Bank, Ahmedabad and the BASIX local area
bank KBSLAB (in three districts of AP and Karnataka) offer savings as RBI regulated entities.

Legal Rules & Regulations.

Banks in India are regulated and supervised by the Reserve Bank of India (RBI) under the RBI
Act of 1934, Banking Regulation Act, Regional Rural Banks Act, and the Cooperative Societies
Acts of the respective state governments for cooperative banks.
NBFCs are registered under the Companies Act, 1956 and are governed under the RBI Act.
There is no specific law catering to NGOs although they can be registered under the Societies
Registration Act, 1860, the Indian Trust Act, 1882, or the relevant state acts.
There has been a strong reliance on self-regulation for NGO MFIs and as this applies to NGO
MFIs mobilizing deposits from clients who also borrow. This tendency is a concern due to
enforcement problems that tend to arise with self-regulatory organizations.
In January 2000, the RBI essentially created a new legal form for providing microfinance
services for NBFCs registered under the Companies Act so that they are not subject to any
capital or liquidity requirements if they do not go into the deposit taking business. Absence of
liquidity requirements is concern to the safety of the sector.
The Reserve Bank of India has now decided to bunch together the beleaguered microfinance
sector as a niche segment within the category of non-banking financial companies (NBFC).
This means it will now be the direct regulator of this sector in line with the recommendations
of the Malegam Committee which made recommendations in this regard after the Andhra
microfinance fiasco.
Under guidelines issued on Friday, the RBI has directed all existing microfinance institutions
(MFIs) who can meet its new regulatory norms to register as NBFC-MFIs by April 2012. Those
who do not meet the norms cannot, henceforth, lend more than 10 percent of their total assets to
the sector.

The conditions set for NBFC-MFIs include the following:

They must have minimum net owned funds of Rs.5 crores (Rs.2 crores if they operate in the
North-East).

Their capital adequacy ratio (CAR) has to be 15 percent. This ratio is the measure of a banks
capital weighed against its risk assets (loans). Since MFIs in Andhra are stuck up to their necks
in bad debts, the RBI has given them a one-year concession in capital adequacy. MFIs with more
than 25 percent exposure to Andhra Pradesh need to maintain only 12 percent CAR in the first
year.

MFIs cannot lend at more than 26 percent interest, and margins on borrowed funds cannot
exceed 12 percent. This means if MFIs can borrow cheap say at 10 percent the interest rate
cap on lending is 22 percent, and not 26 percent.

As far as lending is concerned, not more than two MFIs can lend to the same borrower while one
borrower cannot be a member of two groups simultaneously. The frequency of repayment
instalments can be decided by the borrower. MFIs should have higher cut-offs for lending in
urban and semi-urban areas. MFIs have to start provisioning for defaults, and loans that are not
serviced for more than 90 days should be classified as non-performing.
A microfinance institution under the Microfinance Institutions (Development and Regulation)
Bill, 2012 includes the following entities:

A society registered under the Societies Registration Act, 1860;

A company registered under section 3 of the Companies Act, 1956;

A trust established under any law for the time being in force;

Category

Type of MFIs

Estimated

Legal Acts under which

Number

Registered
Societies Registration Act,

1. Not for Profit

a.) NGO - MFIs

400 to 500

Acts Indian Trust Act, 1882

MFIs
b.) Non-profit
Companies

Section 25 of the
10

a.) Mutually Aided

Societies (MACS)

MFIs

and similarly set up

Cooperative Societies Act

200 to 250

institutions

a.) Non-Banking
3. For Profit MFIs

Financial Companies 50
(NBFCs)
NBFC-MFI

Companies Act, 1956

Mutually Aided

Cooperative
2. Mutual Benefit

1860 or similar Provincial

enacted by State
Government

Indian Companies Act,

1956
Reserve Bank of India Act,
1934
RBI Circular, May 2011

Total

700 to 800

MFIs are registered as one of the following five types of entities:

1. Non-Government Organizations engaged in Microfinance (NGO MFIs), comprising of Societies
and Trusts.
2. Cooperatives registered under the conventional state-level cooperative acts, the national level
Multi-State Cooperative, Societies Act (MSCA 2002), or under the new, State-level Mutually
Aided Cooperative Societies Act (MACS Act);
3. Section 25 Companies (not-for profit);
4. For-profit NBFCs or NBFC-MFIs.
Table 1 tabulates the major regulations applicable to NBFCs as stipulated by the RBI.

Regulation by the RBI and Money Lenders Legislations

Microfinance entities have approached the courts to resolve the issue of dual regulations by the
RBI and under the State Level Money Lenders Legislations. These microfinance entities contend
that an NBFC engaged in microfinance operations, if it has registered itself under RBI norms,
should be exempt from registration under the state money-lending norms.
This is because certain aspects pertaining to the functioning of the NBFCs such as procuring a
licence, the regulation of levy of interest and rate of levy of interest would be subject to dual
regulation if exemption from state-money-lending legislations is denied.
State-wise, there are two questions which have to be answered to predict whether the issue of
conflict between a State Money Lenders Act, and the RBI norms will be resolved in the same

fashion: the issue of dual regulation, and specifically, whether RBI in specified priority sectors at
concessional rates of interest. Currently only MFIs registered as NBFCMFIs are designated as a
priority sector. The number of priority sectors has recently been reduced, which suggests that
banks will be relying more heavily on. Lending to MFIs to meet the priority sector requirements.
In order to register as a NBFC-MFI, an institution must meet requirements specified by RBI.
RBI requires that a minimum of 75 percent of a NBFCMFIs loan portfolio must have originated
for income-generating activities. Additionally, an NBFCMFI must have 85 percent of its total
assets as qualifying assets (excluding cash, balances with banks and financial institutions,
government securities and money market instruments). A qualifying asset is a loan which meets
the following criteria:
1. Borrowers household annual income does not exceed Rs60, 000 or Rs1, 20,000 for rural and
urban areas respectively.
2. Maximum loan size of Rs35, 000 (first cycle) and Rs50, 000 (subsequent cycles).
3. Maximum borrower total indebtedness of Rs50, 000
4. Minimum tenure of 24 months when loan exceeds Rs15, 000.
5. No prepayment penalties.
6. No collateral.
7. Repayable by weekly, fortnightly or monthly instalments at the choice of the borrower.

TYPES
OF
MICRO-FINANCE
MODELS
&
ORGANIZATION
IN

INDIA

Types of Micro-Finance Models in India.

Micro- finance Institutions (MFIs) are an extremely heterogeneous group comprising NBFCs,
societies, trusts and cooperatives. They are provided financial support from external donors and
apex institutions including the Rashtriya Mahila Kosh (RMK), SIDBI Foundation for microcredit and NABARD and employ a variety of ways for credit delivery.
Since 2000, commercial banks including Regional Rural Banks have been providing funds to
MFIs for on lending to poor clients. Though initially, only a handful of NGOs were into
financial intermediation using a variety of delivery methods, their numbers have increased
considerably today. While there is no published data on private MFIs operating in the country,
the number of MFIs is estimated to be around 800.

1. Bank Partnership Model

This model is an innovative way of financing MFIs. The bank is the lender and the MFI acts as
an agent for handling items of work relating to credit monitoring, supervision and recovery. In
other words, the MFI acts as an agent and takes care of all relationships with the client, from first
contact to final repayment. The model has the potential to significantly increase the amount of
funding that MFIs can leverage on a relatively small equity base.

Bank

MFI

CLIE
NT

In this diagram we see that a MFI acts as anas an agent for handling items of

work relating to credit monitoring, supervision and recovery. In other words, the
MFI acts as an agent and takes care of all relationships with the client, from first
contact to final repayment

A sub - variation of this model is where the MFI, as an NBFC, holds the individual loans on its
books for a while before securitizing them and selling them to the bank. Such refinancing
through securitization enables the MFI enlarged funding access.
If the MFI fulfils the true sale criteria, the exposure of the bank is treated as being to the
individual borrower and the prudential exposure norms do not then inhibit such funding of MFIs
by commercial banks through the securitization structure.

2. Banking Correspondents Model

The proposal of banking correspondents could take this model a step further extending it to
savings. It would allow MFIs to collect savings deposits from the poor on behalf of the bank.
It would use the ability of the MFI to get close to poor clients while relying on the financial
strength of the bank to safeguard the deposits.
This regulation evolved at a time when there were genuine fears that fly-by-night agents
purporting to act on behalf of banks in which the people have confidence could mobilize savings
of gullible public and then vanish with them. It remains to be seen whether the mechanics of
such relationships can be worked out in a way that minimizes the risk of misuse
.

BANK

In this diagram we see that

MFI collect saving
deposits from poor on
behalf of the bank while
clients rely on the

MFI
CLIENT

financial strength of bank

to safe guard their deposits

CLIENT CLIENT

3.

Bank forms its own MFI the MFI uses

the branch network of the bank as its

outlets to reach clients. This allows the

client to be reached at lower cost than in

the case of a standalone MFI

BANK

c
e

MFI formed by bank

Branches
of bank
CLIENTS
Company Model

Branches
of bank
CLIENT
S

CLIENT
S

Under this model, the bank forms its own MFI, perhaps as an NBFC, and then works hand in
hand with that MFI to extend loans and other services. On paper, the model is similar to the
partnership model: the MFI originates the loans and the bank books them. But in fact, this model
has two very different and interesting operational features:
The MFI uses the branch network of the bank as its outlets to reach clients. This allows the
client to be reached at lower cost than in the case of a standalone MFI. In case of banks which
have large branch networks, it also allows rapid scale up.
In the partnership model, MFIs may contract with many banks in an arms length relationship. In
the service company model, the MFI works specifically for the bank and develops an intensive
operational cooperation between them to their mutual advantage.
The Partnership model uses both the financial and infrastructure strength of the bank to create
lower cost and faster growth. The Service Company Model has the potential to take the burden of
overseeing microfinance operations off the management of the bank and put it in the hands of
MFI managers
This manager is focused on microfinance to introduce additional products, such as individual
loans for SHG graduates, remittances and so on without disrupting bank operations and provide a
more advantageous cost structure for microfinance.

4. Bank Led Model

Bank
MFI
SHG
CLIENT

CLIENT

CLIENT

The bank led model was derived from the SHG-Bank linkage program of NABARD. Through
this program, banks financed Self Help Groups (SHGs) which had been promoted by NGOs and
government agencies. ICICI Bank drew up aggressive plans to penetrate rural areas through its
SHG program.
However, rather than spending time in developing rural infrastructure of its own, in 2000, ICICI
Bank announced merger of Bank of Madura (BoM), which had significant presence in the rural
areas of South India, especially Tamil Nadu, with a customer base of 1.9 million and 87
branches.
Bank of Madura's SHG development program was initiated in 1995. Through this program, it
had formed, trained and initiated small groups of women to undertake financial activities like
banking, saving and lending. By 2000, it had created around 1200 SHGs across Tamil Nadu and
provided credit to them.

27

5. Partnership Models

The ICICI Bank Partnership Model

Loan at 9%

BANK

JLG
GROUP

MFI

FLDG of

Servicin

10%

g fees

Interest

of 11%

charged

A model of microfinance has emerged in recent

years in which a microfinance institution (MFI) borrows from banks and

: 20%

on-lends to clients; few MFIs have been able to grow beyond a certain
point. Under this model, MFIs are unable to provide risk capital in large quantities, which limits
the advances from banks.

In addition, the risk is being entirely borne by the MFI, which limits its risk-taking. This model
aimed at synergizing the comparative advantages and financial strength of the bank with social
intermediation, mobilization power and infrastructure of MFIs and NGOs.
Through this model, ICICI Bank could save on the initial costs of developing rural infrastructure
and micro credit distribution channels and could take advantage of the expertise of these
institutions in rural areas.
Initially, ICICI Bank started off by lending to MFIs and NGOs in order to provide the necessary
financial support to their activities. Later, ICICI Bank came up with a plan where the NGO/MFI
continued to promote their microfinance schemes, while the bank met the financial requirements
of the borrowers.

Types of organization of Micro-Finance in India

These organizations are classified in the following categories to indicate the functional aspects
covered by them within the micro- finance framework. The aim, however, is not to "typecast" an
organization, as these have many other activities within their scope:
Microfinance providers in India can be classified under three broad categories: formal,
semiformal, and informal.

1. 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 deposit at around Rs.350 billion and of that, around Rs.250 billion 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%.

A.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. Organizations
implementing micro-finance activities can be categorized into three basic groups.

I. Organizations which directly lend to specific target groups and are carrying out all related
activities like recovery, monitoring, follow-up etc.
II. Organizations who only promote and provide linkages to SHGs and are not directly involved
in micro lending operations.
III. Organizations which are dealing with SHGs and plan to start micro-finance related activities.

B.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. These are the organizations that
provide support to implementing organizations.
The support may be in terms of resources or training for capacity building, counselling,
networking, etc. They operate at state/regional or national level. They may or may not be directly
involved in micro-finance activities adopted by the associations/collectives to support
implementing Organizations.

SKS Microfinance Limited

Company info
SKS Microfinance Limited (SKS) is a non-banking finance company (NBFC), regulated by
the Reserve Bank of India. SKS' mission is to provide financial services to the poor under the

premise that providing financial services to poor borrowers helps to alleviate poverty. The
company operates across 19 of 29 Indian states. SKS was founded in 1997 by Vikram Akula,
who has served as its executive chair until November 2011. SKS uses the group lending model
where poor women guarantee each others loans. Borrowers undergo financial literacy training
and must pass a test before they are allowed to take out loans. Weekly meetings with borrowers
follow a highly disciplined approach. Re-payment rates on our collateral-free loans are more than
99% because of this systematic process. SKS also offers micro-insurance to the poor as well as
financing for other goods and services that can help them combat poverty.
SKS microfinance is a Mid Cap company (having a market cap of Rs 6336.83 Cr.) operating in
Finance sector. The companys management includes Mr. Sudershan Pallap, Mr. Ashish Damani,
Mr. Rajendra Patil, Mr. S Dilli Raj, Mr. Sudershan Pallap, Dr. Punita Kumar Sinha, Dr. Tarun
Khanna, Mr. Geoffrey Tanner Woolley, Mr. K G Alai, Mr.M R Rao, Mr. P H Ravikumar, Mr.
Paresh Patel, Mr. S Balachandran, Mr. Sumir Chadha. Company has S R Batliboi & Co. LLP as
its auditors. As on 31-Dec-2015, the company has a total of 127,093,793 shares outstanding.

COMPANYS CORE BUSINESS

SKS serves millions of poor women across tens of thousands of villages and urban slums in
India. We have achieved this scale through an innovative combination of using a for profit
model, drawing on best practices from the business world and deploying technology. We are
using the channel that we have created to provide a full range of financial services to the poor.
By providing the poor this range of economic tools, we are looking forward to the eradication of
poverty. Company's core business is providing small loans exclusively to poor women
predominantly located in rural areas in India. These loans are provided to such members
essentially for use in their small businesses or other income generating activities and not for
personal consumption.
These individuals often have no, or very limited, access to loans from other sources other than
private money lenders that they believe typically charge very high rates of interest. The main
objective of SKS micro- finance is to promote financial independence among the poor. SKS
Micro- finance encourages all borrowers to become savers, so that their capital will be converted
into new loans to others.
SKS serves millions of poor women across tens of thousands of villages and urban slums in
India. They have achieved this scale through an innovative combination of using a for profit
model, drawing on best practices from the business world and deploying technology. They are
using the channel that we have created to provide a full range of financial services to the poor.
By providing the poor this range of economic tools, we are looking forward to the eradication of
poverty SKS uses the group lending model where poor women guarantee each others loans.
Borrowers undergo financial literacy training and must pass a test before they are allowed to take
out loans. SKS Microfinance is an effective tool that can help reduce poverty and spread
economic opportunity by giving poor people access to financial services, such as credit and
insurance.

Shareholders

No. of Equity Shares

Percentage

Kismet Microfinance

3,377,333

2.66%

Total of Shareholding of Promoter and Promoter Group

3,377,333

2.66%

IDFC*
Morgan Stanley Asia (Singapore) Pte.

6,924,786
5,829,100

5.45%
4.59%

Amansa Holdings Private Limited

5,506,193

4.33%

Sandstone Investment Partners, I

5,159,502

4.06%

Max Life Insurance Company Limited*

4,400,887

3.46%

Mr. Vinod Khosla

4,238,866

3.34%

Birla Sun Life Trustee Company Private Limited*

3,545,897

2.79%

Baron Emerging Markets Fund

2,850,000

2.24%

Kismet SKS II

2,461,578

1.94%

Tree Line Asia Master Fund (Singapore) Pte Ltd

2,357,076

1.85%

DSP BlackRock*

2,170,506

1.71%

Swiss Finance Corporation (Mauritius) Limited

2,056,691

1.62%

Amundi Funds Equity India

2,000,000

1.57%

ICICI Prudential*

1,819,701

1.43%

Morgan Stanley Mauritius Company Limited

1,607,765

1.27%

Tree Line Asia Master Fund (Singapore) Pte Ltd

1,492,924

1.17%

TVF Fund Ltd

1,479,895

1.16%

Small Industries Development Bank of India

1,475,961

1.16%

Kotak Mahindra (UK) Ltd A/C INDIA MIDCAP (MAURITIUS)

1,364,702

1.07%

LTD
Sub Total

58,742,030

46.21%

(ii) Others

64,974,430

51.12%

Total of Public Shareholding (i) + (ii)

123,716,460

97.33%

(C) Shares held by Custodians and against which Depository

0.00%

Receipts have been issued

Total (A)+(B)+(C)

127,093,793

100%

(A) Shareholding of Promoter and Promoter Group

(B) Public Shareholding

(i) Holding more than 1% of the Total No. of Shares:

INVESTMENT PARTNERS OF SKS MICRO FINANCE

BOARD OF DIRECTORS OF SKS MICRO-FINANCE

The board of directors of SKS microfinance are as follows:

1. P.H. Ravi Kumar, Non-Executive Chairman

P. H. Ravikumar is a commercial banker with over 39 years of experience in the financial
services sector. He was part of the core team which set up and built ICICI Bank Limited from
inception. In banking, his experience spans the areas of retail, corporate and treasury banking in
India and abroad. At ICICI Bank, his responsibilities included business strategy as also risk
management and he helped this unit become an industry leader in a short span of time. He is also
a Fellow of Securities Investments Institute, London. He is on the boards of several other
companies including Bharat Forge Ltd and Eveready Industries India Ltd.

2. M. R. Rao, CEO and Managing Director

MRs expertise lies in managing operations in a large business environment, formulating

business strategies and identifying new markets. An alumni of BITS Pilani, he has over
25 years of experience in Profit Centre Management, setting up distribution in Insurance,
Retail Banking and Consumer Finance. Prior to SKS, he was associated with ING Vysya
Life Insurance, American Express, Standard Chartered Bank and Esanda Finanz &
Leasing Limited. MR joined SKS in October 2006 and has been at the forefront, driving
its rural distribution reach and scale-up.

3. Paresh Patel, CEO, Sandstone Capital

Paresh Patel is the CEO of Sandstone Capital, an India-focused hedge fund. Sandstone is a value-oriented
investment partnership focused on long-term opportunities in India, with a preference for deep value,

special situations, midcaps and complex opportunities. Sandstone Capital has an office in Boston. Prior to
Sandstone Capital LLC, Paresh Patel was the Managing Director of Sparta Group, the private investment
office of Gururaj Deshpande, founder of Sycamore Networks. At Sparta, Paresh invested with Desh in
early-stage ventures in the US and India - including A123 Systems, Indian Lotus, Relicore and Tejas
Networks. Paresh is a graduate of Harvard Business School and Boston College.

4. K.G. Alai, Nominee Director, SIDBI

Mr.K.G. Alai, Chief General Manager, Small Industries Development Bank of India (SIDBI),

Mumbai, is a career development banker. He is a Post Graduate in Commerce with a Degree in

Law and Diploma in Banking. He is also a qualified Company Secretary. He started his career in
the country's apex development bank viz the Industrial Development Bank of India (IDBI).
He has over three decades of practical experience in development and financing of Micro, Small
and Medium Enterprises (MSME) both in IDBI and SIDBI. He had extensive field level
operational and promotional engagement with MSMEs and Micro Finance Institutions in major
centres of the Bank.

5. Sumir Chadha, Managing Director, West Bridge (formerly Sequoia Capital)

Sumir Chadha is the Managing Director with West Bridge Formerly Sequoia Capital.
West Bridge Formerly Sequoia Capital was formed by merging Sequoia Capital and West
Bridge Capital Partners, India's leading venture capital fund, which Sumir co-founded in
2000. Sumir has been investing in the Indian venture capital industry for the past ten
years in several industries including offshore services, consumer internet and financial
services. Prior to co-founding West Bridge, Sumir was a member of the Principal
Investment Area at Goldman Sachs & Co., where he led a number of successful software
and services investments. Sumir is the co-founder and Chairman of the Global India
Venture Capital Association (GIVCA) and also a Charter Member of the Indus
Entrepreneurs (TiE).

6. S. Balachandran, Independent Director

S. Balachandran has 35 years of experience in the Government and Corporate Sector

including an overseas assignment. Among the key positions held by him in the past are:
Additional Member (Budget), Ministry of Railways; Managing Director, Indian Railway
Finance Corporation; Joint Director in the office of the Comptroller and Auditor General
of India. He is presently on the Boards of Dredging Corporation of India, PTC India
Limited, PTC Energy Limited, ONGC Petro Additions Limited and United Stock
Exchange Limited (SEBI nominee).

SKS MICRO FINANCE BUSINESS MODEL

GROUP
FORMATIO
N

Sangam
Size
Increases

Repaymen
t of Loans

Sangam
Formation
&
Borrowing

Member
invests in
enterprise
s

SKS micro finance uses Joint Liability Group model as their business model Joint
Liability Group is a concept established in India in 2014 by the rural development
agency National Bank for Agriculture and Rural Development (NABARD) to
provide institutional credit to small farmers. JLG was pioneered by Grameen Bank
Joint Liability Group is a group of 4-10 people of same village/locality of
homogenous nature and of same Socio Economic Background who mutually come
together to form a group for the purpose of availing loan from a bank without any
collateral Pioneered by Grameen BankLending to individual women, utilizing five
member groups where groups serve as the ultimate guarantor for each
memberHigh Repayment Ratio of 98% Because of Social Pressure

Purpose of JLG
Providing Credit to Small and Marginal Farmers, Tenant Farmers, Oral Lessee,
Landless Laborers and Artisans
Providing Collateral Free Loan to Groups
Building Confidence between Groups and Banks
To mitigate the credit risk by way of group dynamics, peer pressure, credit
discipline and cluster approach.
To provide self-employment and increase production of agricultural
products.
Lending to individual women, utilizing five member groups where groups
serve as the ultimate guarantor for each member
High Repayment Ratio of 98% Because of Social Pressure
Features of JLGs
Members should have a common activity.
Members need not to have a land title.
Members should be of the same village.

 Only One member of a family can become a member of JLGs.

Members should not be a defaulter of bank loan.
Member should hold regular meetings

METHODODLOGY OF SKS MICRO-FINANCE

SKS Microfinance follows the Joint Liability Group Model. The methodology
involves lending to individual women, utilising five member groups where groups
serve as the ultimate guarantor for each member.
Their 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. Their 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.
From village selection to loan disbursal, SKS follows a clear process in its
operations. Details of our operational methodology are captured below:

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.

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

Mini -Projection Meeting

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

 Group Formation
Women form self-selected five-member groups to serve as guarantors for each other. Experience
has shown that a five-member group is small enough to effectively enforce group peer pressure
and, if necessary, large enough to cover repayments in case a member needs assistance.

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.

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 3 to 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.
.

SKS MICRO FINANCE PRODUCTS

The products of SKS micro finance are as follows

1. Income Generation Loans (IGL) Aarambh:

Loans range from Rs. 9,100 to Rs. 20,010 for the first loan; subsequent loan amounts
determined by past credit history and increased each in set increments up to a maximum of
Rs. 29,565. Term of the loan is 50 weeks with principal and interest payments due on a
weekly basis 19.75 % annual effective interest rate and processing fee of 1%
Benefits of Income Generational Loan -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.

2. Mid-Term Loan (MTL) Vriddhi:

Loans range from Rs. 9,100 to Rs. 15,010 for the first loan; subsequent loan amounts
determined by past credit history and increased each in set increments up to a maximum
of Rs. 15,010. Available any time after the completion of 19th weeks & till 46th weeks of
an IGL cycle and till 96th week of LTL cycle. Term of the loan is 50 weeks with principal
and interest payments due on a weekly basis 19.75% annual effective interest rate and
processing fee of 1%.
Benefits of Mid-Term Loan (MTL) Vriddhi -. 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

3. Mobile Loans:

Loan amount ranges from Rs. 1,799 to Rs. 5,290. Loan tenure is 25 weeks Annualized Interest
rate ranges from 19.60 % to 19.70% depending on the product.
Benefits of Mobile loan - Loans are offered to members for purchase of products like cookstove/ solar light/ water purifier/ mobile phone/ bicycle and sewing machine to enhance their
productivity and income generation ability

4. Housing Loans:
SKS micro finance provides housing loans to their clients the loan amount range from Rs.
50,000 to Rs. 150,000 the interest rates are 11.9%

5. Funeral Assistance:
funeral assistance of Rs.1000 is applicable only for members who have paid insurance
premium, and is provided to family of the member if information is received within 14 days
death.

6. Gold loan
Gold Loan pilot launched under the name of Swarnapushpam provide personal/business loans
to our members for meeting their short-term liquidity requirements loans secured by gold
jewellery ranging from Rs.2000 to Rs.1,00,000 extended to 40 branches across states of
Karnataka, Maharashtra and UP gold Loan portfolio stood at Rs 55.9 crore, representing 2.4% of
total outstanding loan portfolio at the end of FY13

7. Solar Lamps Financing Program

Indian homes traditionally use kerosene lamps to light up their homes prolonged exposure to
fumes and harmful particles dangerous to health SKS partnered with D. light solar to make solar
lamps available to its members initiative in 10 branches across 2 states, estimated to reach 475
branches in FY15

Operational
information

FY14

FY13

FY12

FY11

FY10

FY09

Total no. of
Branches

1,255

1,261

1,461

2,379

2,029

1,353

Total no. of
Districts

294

298

329

378

341

307

Total no. of Staff 8,932

10,809

16,194

22,733

21,154

12,814

Total No. of
Members (in
'000)

5,783

5,021

5,351

7,307

6,780

3,953

Amount
Disbursed for the
4,788
period (INR
crores)

3,320

2,737

7,831

7,618

4,485

Portfolio
outstanding (INR 3,113
crores) *

2,359

1,669

4,111

4,321

2,456

Centres

2,28,188 2,16,234 2,29,600 2,74,782 2,26,017 1,29,461

States covered

15

15

18

19

19

18

Loan Officers

1,100

744

517

477

571

498

4,3088

4,257

6,242

5,795

3,521

Active borrowers
4,963
(in 000)

OPERATIONAL PERFORMANCE OF SKS MICRO FINANCE

LOANS DISBURSED BY SKS MICRO-FINANCE

Loans Disbursed

Linear (Loans Disbursed)

9,000
8,000
7,831
7,000

7,618

6,000
5,000
Amount in Crores

4,000

4,485

4,485
3,320

3,000

2,737
2,000
1,000
0

FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

Financial year

LOANS DISBURSED BY SKS MICRO-FINANCE FROM 2010 TO 2015

In Financial year 2010 SKS micro-finance disbursed loans of Rs 4,485 crores
to their clients but in financial year 2011 the amount declined to Rs 3,320
crores & in financial year 2012 the disbursement of loan reached a low of Rs
2,737 crores then in financial year 2013 the amount of loan disbursed to
clients boosted up to Rs 7,831 crores in financial year 2014 it decreased to Rs
7,618 crores & in financial year 2015 the amount of loan disbursement
shrinked to Rs 4,485 crores respectively.

REVENUE OF SKS MICRO-FINANCE

1400

1270

1200

1000
958
800

Amount inColumn2
Crores

Linear (Column2)

Linear (Column2)

600
554

545
472

400

353
200

FY 10

FY 11

FY 12

FY 13

FY 14

Financial Year

REVENUE OF SKS MICRO-FINANCE FROM 2010 TO 2015

In financial year 2010 the revenue of SKS micro finance was Rs 554 crores
then in year 2011 the revenue increased to Rs 958 crores in financial year
2012 SKS micro finance boosted had rallied up to Rs 1,270 crores in
financial year 2013 the revenue shrinked to Rs 472 crores in financial year

FY 15

2014 the revenue decreased to Rs 353 crores but in financial year 2015 the
revenue of SKS micro finance gained up to Rs 545 crores

Net worth of SKS MICRO-FINANCE from 2010 to 2015

Networth

Linear (Networth)

Linear (Networth)

2000
1800
1781
1600
1400
1200

Amount In Crores

1000
950
800
600

665

400

435

459
390

200
0

FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

Financial Year

NET WORTH OF SKS MICRO-FINANCE FROM 2010 TO 2015

The net worth of SKS micro fianc in financial year 2010 was Rs 665 crores
in financial year 2011 the net worth expanded to Rs 950 crores in financial
year 2012 the net worth of SKS micro finance boosted up to Rs 1,781 crores

but in financial year 2013 the net worth of SKS micro finance shrinked to Rs
435 crores in financial year 2014 the net worth declined to Rs 390 crores but
in financial year 2015 the net worth increase to Rs 459 crores.

AUM & Borrowers of SKS MICRO-FINANCE from 2011 to 2015

AUM(Rs in Billion)

Linear (AUM(Rs in Billion))

Borrowers(In million)

Linear (Borrowers(In million))

Linear (AUM(Rs in Billion))

45
40

42

41

35
30

30

25
24

20
17

15
10
5
4.4
0

FY 11

2.5
FY 12

2.6
FY 13

3.6

3.3
FY 14

FY 15

Financial Year

AUM & Borrowers of SKS MICRO-FINANCE from 2011 to 2015

In financial year 2011 the assets under management was Rs 41 billion and the
no of borrowers were 4.4 million respectively in financial year 2012 the
assets under management was declined to Rs 17 billion & the no of
borrowers declined to 2.5 million in financial year 2013 the assets under
management increased to Rs 24 billion & the no of borrowers increased to
2.6 million in financial year 2014 the asset under management showed an

upsurge of Rs 30 crores & the no of borrowers were raised to 3.3 million in

financial year 2015 the asset under management showed a boost of Rs 42
billion & the no of borrowers increased to 3.6 million respectively.

FUNDING OF SKS MICRO-FINANCE FROM 2010 TO 2015

Bank

Financial Institution

NBFC

Securitisation

70
60
50
40

In Percentage

64

30
20
10
0

44

61

58

38

48

47

44

41

35
23

16
2
FY 10

12
2
FY 11

23
8
1
FY 12

7
0
FY 13

3
FY 14

7 9
FY 15

Financial Year

FUNDING OF SKS MICRO-FINANCE FROM 2010 TO 2015

In financial year 2010 the funds funded by banks were around 44%, the funds
funded by Financial institution were around 16%, NBFC companies funded
around 2% & the 38% of funds were raised through securitisation by SKS
micro finance.

In financial year 2011the funding by bank was increased up to 64% but the
funding of Financial institution was decreased up to 12% the funds funded by
NBFC companies were at constant level of 2% & the funds which were
raised through securitisation were decreased up to 23% respectively.
In financial year 2012 the funds funded by bank were declined up to 44%
also the funds which were funded by financial institution were decreased up
to 8% & the funding of NBFC was declined up to 1% but the funds raised
through securitisation showed a boost up to 47% respectively.
In financial year 2013 the funding of funds by banks increased up to 58% but
the funding of financial institutions was declined up to 7% & there was no
funding from NBFC companies & the funds raised through securitisation
were declined up to 38% respectively.

In financial year 2014 the funding by banks was declined up to 48% the
funds funded by financial institutions raised up to 8% the funds funded by
NBFC showed a boost up to 3% & the funds raised through securitisations
showed an increase up to 43% respectively.
In financial year 2015 the funding of banks was boosted up to 61% but the
funding of financial institution was declined up to 7% but the funding of

funds by NBFC showed boosting of 9% & the funds raised through

securitisation declined to 23% respectively.
CATEGORY

NO. OF SHARES

PERCENTAGE

DIRECTORS
FOREIGN INSTITUTIONS
NBFC AND MUTUAL FUNDS
OTHERS
GENERAL PUBLIC
OTHER COMPANIES
FOREIGN PROMOTERS
FOREIGN - NRI
FINANCIAL INSTITUTIONS

358,666
60,582,946
19,596,904
11,340,546
10,455,287
9,389,105
7,995,231
5,485,068
1,550,338

0.28%
47.80%
15.46%
8.95%
8.25%
7.41%
6.31%
4.33%
1.22%

SHARE HOLDING PATTERN OF SKS MICRO-FINANCE

358,666
1,550,338
5,485,068
7,995,231
9,389,105

10,455,287

60,582,946

11,340,546

19,596,904

Directors

Foreign Institutions

NBFC

Others

General Public

Other Companies

Foreign Promoters

NRI

Financial Institutions

SHARE HOLDING PATTERN OF SKS MICRO FINANCE

SOURCES OF PORTFOLIO FUNDING OF SKS MICRO-FINANCE

COMMERCIAL PAPER; 4% OTHERS; 3%

BONDS; 3%

LOANS

PORTFOLIO SALES

PORTFOLIO SALES; 34%

BONDS

COMMERCIAL PAPER

LOANS; 56%

SOURCES OF PORTFOLIO FUNDING OF SKS MICRO-FINANCE

CATEGORY

PORTFOLIO FUNDING (PERCENTAGE)

LOANS

56%

PORTFOLIO SALES

34%

BONDS

3%

COMMERCIAL PAPER

4%

OTHERS

3%

OTHERS

RECOMMENDATIONS FOR SKS MICRO FINANCE

SKS micro finance is one of the most reputed & expanding company in the field of micro fianc
below are the recommendations for SKS micro finance:
Proper Regulation:
The regulation was not a major concern when the microfinance was in its nascent stage and
individual institutions were free to bring in innovative operational models. However, as the
sector completes almost two decades of age with a high growth trajectory, an enabling regulatory
environment that protects interest of stakeholders as well as promotes growth, is needed.
Field Supervision:
In addition to proper regulation of the microfinance sector, field visits can be adopted as a
medium for monitoring the conditions on ground and initiating corrective action if needed. This
will keep a check on the performance of ground staff of various MFIs and their recovery
practices.
This will also encourage MFIs to abide by proper code of conduct and work more efficiently.
However, the problem of feasibility and cost involved in physical monitoring of this vast sector
remains an issue in this regard.
Encourage rural penetration
It has been seen that in lieu of reducing the initial cost, MFIs are opening their branches in
places which already have a few MFIs operating. Encouraging MFIs for opening new branches
in areas of low microfinance penetration by providing financial assistance will increase the
outreach of the microfinance in the state and check multiple lending. This will also increase rural
penetration of microfinance in the state.

Complete Range of Products

MFIs should provide complete range of products including credit, savings, remittance, financial
advice and also non-financial services like training and support. As MFIs are acting as a
substitute to banks in areas where people dont have access to banks, providing a complete range
of products will enable the poor to avail all services.
Transparency of Interest rates:
As it has been observed that, MFIs are employing different patterns of charging interest rates and
a few are also charging additional charges and interest free deposits (a part of the loan amount is
kept as deposit on which no interest is paid).
All this make the pricing very confusing and hence the borrower feels incompetent in terms of
bargaining power. So a common practice for charging interest should be followed by all MFIs so
that it makes the sector more competitive and the beneficiary gets the freedom to compare
different financial products before buying.
Technology to reduce Operating Cost:
MFIs should use new technologies and IT tools & applications to reduce their operating costs.
Though most NBFCs are adopting such cost cutting measures, which is clearly evident from the
low cost per unit money lent (9%-10%) of such institutions.
NGOs and Section 25 companies are having a very high value of cost per unit money lent i.e. 1535 percent and hence such institutions should be encouraged to adopt cost-cutting measures to
reduce their operating costs. Also initiatives like development of common MIS and other
software for all MFIs can be taken to make the operation more transparent and efficient.

Alternative sources of Fund:

In absence of adequate funds, the growth and the reach of MFIs become restricted and to
overcome this problem MFIs should look for other sources for funding their loan portfolio. Some
of the ways through which MFIs can raise their fund are:
By getting converted to for-profit company i.e. NBFC: Without investment by outside investors,
MFIs are limited to what they can borrow to a multiple of total profits and equity investment. To
increase their borrowings further, MFIs need to raise their Equity through outside investors.
The first and the most crucial step to receive equity investment are getting converted to for-profit
NBFC. Along with the change in status the MFI should also develop strong board, a quality
management information system (MIS) and obtain a credit rating to attract potential investors.

CONCLUSION
SKS Microfinance Limited (SKS) is the countrys leading listed microfinance
player in India providing credit to over 6.4 million poor people through its network
of 1268 branches spread across several states. Its core business is to provide smallticket loans, primarily to women borrowers who are generally outside the financial
system, under the joint liability group. It also provides other basic financial
services to its target segment.
SKS is primarily engaged in providing microfinance to lowincome individuals in
India. SKS Microfinances core business is providing small value loans and certain
other basic financial services to its members (customers), who are predominantly
located in rural areas in India. These members use SKS loans mainly for small
businesses or for other incomegenerating activities; they are not usually used for
personal consumption. These individuals often have no access (or very limited
access) to loans from institutional sources of financing. In its core business, SKS
uses a villagecentered, grouplending model to provide unsecured loans to its
members.
This model relies on a form of social collateral and ensures credit discipline
through peer support within the group. SKS believes this model makes members
prudent in conducting their financial affairs and prompt in repaying their loans. If
an individual borrower fails to make timely repayments, other members in the
group will not be able to borrow from SKS in the future. In such a situation, the
group usually uses peer pressure to encourage the delinquent borrower to make
timely repayments or will often make a repayment on behalf of a defaulting
borrower, effectively providing an informal joint guarantee on the borrowers loan.

Under its jointliability grouplending model, SKS lends solely to women

borrowers (similar to the Grameen Bank model) in this model, women
guarantee each others loans. There are three reasons why SKS lends only to
women: 1) Women tend to use resources more productively than men; 2) They are
more likely to invest most of their income back into the household; 3) They are
more likely to avoid risky ventures and instead use loans to undertake small,
manageable activities.
SKSs approach is to provide financial services at the doorstep of members in
villages and urban colonies. This allows its customers convenience and savings in
terms of cost and time associated with travelling to mainstream banks. It also
enables SKS staff to promptly and fully collect repayments. SKS loans are
designed for convenience with small weekly repayments corresponding to cash
flows. Small first loans inculcate credit discipline and collective responsibility.
SKS uses a fivemember JointLiability Group (JLG) lending methodology based
on the Grameen Bank model, where each member of the group serves as the
ultimate guarantor for each of its members. Further, multiple groups (4 to 10) of
members in a single village are combined together as a Sangam (Centre). The
Sangam is responsible for the repayment of all groups, creating a dual joint
liability system, where the Sangam pays in case any of the group defaults on
payment. The Centre meets every week,
Opportunities
Huge opportunities for micro-lending in India
Scalable business model
High entry barriers, strong brand and experienced team

 Diversification into non Andhra Pradesh (AP) states

Changes in regulations and conversion into small bank positive
Better processes and restructuring exercises to keep NPAs low and improve cost
efficiencies
Improvement in profitability post AP MFI crisis
Cross Selling to improve revenues and margins
Risks
Microfinance (being a sensitive subject) will always be subjected to political
risk.
Events such as natural calamities can hurt asset quality, with high write-offs.
Regulatory risk, i.e., if RBI announces measures that negatively affect growth
or profitability.
High attrition in the field officer segment, which may impact business growth
and reduce productivity.
Around 84% funds is sourced from banks (including 23% from securitization).
Any disruption in flow of funds could
impact the business growth.
High lending interest rates
From above points we can conclude that SKS micro finance is an expanding
company in the sector of micro finance & if the company follows
recommendations by experts the company can gain achieve growth & increase its
user client base thus making it one of the leading companies in the sector of micro
finance in India