MICRO FINANCE

 It is the source of financial services for entrepreneurs and

small businesses lacking access to banking and related
services.
 Micro finance is a vital instruments to eradicate poverty.

 Two mechanisms for delivery of financial services to

clients:
 Individual based model

 Group based model

 Microfinance = Micro Savings + Micro Credit +Micro
Insurance + Training +Health + Other non financial services.
 It is an alliance of financial intermediation and social
intermediation.
 Financial intermediation = microcredit + savings

 Social intermediation = training + insurance +health etc

 Micro credit
A)Traditional informal microcredit
 moneylender’s credit

 pawn shops

 loans from friends and relatives

 consumer credit in informal market

B) Activity-based microcredit through conventional or

specialised banks
 agricultural credit

 livestock credit

 fisheries credit

 handloom credit
C) Rural credit through specialised banks.
D) Cooperative microcredit
 cooperative credit

 credit union

 savings and loan associations

 savings banks

D) Bank-NGO partnership based microcredit.

E) Grameen type microcredit or Grameen credit.
 Regulator of microfinance in India
MFIN is a primary representative body and the
Self-Regulatory Organization for Non Banking
Finance Companies (NBFC) Microfinance
Institutions (MFIs) regulated by the Reserve
Bank of India (RBI).
 Inventor of micro finance

Muhammad Yunus
Nobel price winner for his contribution of micro
credit
Microfinance institutions in India
There are various types of microfinance companies operating in India.
Joint Liability Group (JLG) .
Self Help Group (SHG) .
The Grameen Bank Model.
Rural Cooperatives.
 Self Help Group Grameen Bank Model Rural Cooperatives
Joint Liability Group

Starts with only 2

members per group in a
5-10 members per 10-20 members per 70-80 members per
Size village, eventually
group group group
increased after loan is
successfully repaid

Savings and deposits to

Regular savings in
Generally lending only, extremely poor Primarily lending
deposit accounts with
Services irrespective of savings sections of the society services for agricultural
the financial
amount for business, purposes
institutions.
health and housing

Field Manager visits

villages to form groups Cooperative society
Members invest loan of 5 and lends to 2. consisting of members
amount for different All individuals of Amount recovered is are formed for a
Model purposes, but are group work together on reinvested in further singular purpose; such
guarantors of each the same activity lending and as real estate,
other infrastructure agriculture,
development in infrastructure, etc.
villages

Formal structure
More formal with consisting of Unit
All members interact All members interact
defined positions in Manager, Field
Structure with the financial with the financial
each group like Manager, etc. Who
institution individually institution jointly
treasurer and secretary interact with every
family in a village
Mohammed yunus –banker to the poor
o It took just 27$ for him to change the world with lasting
progession called grameen bank.
o He re-invented banking.

o It started with a global revolution that brought hope,

opportunity and pride to the poorest people.
Aim: Social justice for all
o It started in Bangladesh, although it is country with rich culture
but it is a densely populated and poorest country.
Loans from grameen banks helps in
 Create better neighbourhood

 Schooling

 Graduation

 Job

 Business

Provided funding
 Women

 Craftman

 Farmers

 Grocery stores
 Dairy cows (buying and selling milk to co-operatives society)
 Buying materials for furniture

 Loans for hand pump water well that provided drinking water
for entire community (group loan)
Grameen banks works without
 Collateral

 Credit checks

 Written contract
 According to the bank officials 97% of entire loans given to the
poor are repaid.
 Over the years the bank has given more than 13 billion$ to 8.4
million borrowers helping to improve the community.
 Since 1992 the poverty rate in Bangladesh has reduced from
56% to 31% .
 In 1979 this project became successful and central bank of
india began to sponsor it.
 In octobor 1983 grameen bank transformed into independent
bank.
How the loan works?
 Acquire loans

 Invest in business or agriculture

 Earn and pay of the debt

Other services and projects:
 Village phone programme

 Women entrepreneurs provide rural area with cell phones.

 Housing loans

Interest rates:
 Government of Bangladesh has fixed interest rate for
government-run microcreditprogrammes at 11 per cent at flat
rate.
 It amounts to about 22 per cent at declining basis.

 Grameen Bank’s interest rate is lower than government rate.

 There are four interest rates for loans from Grameen Bank :
 20% (declining basis) for income generating loans
 8% for housing loans
 5%for student loans
 0% (interest-free) loans for Struggling Members (beggars).
 All interests are simple interest, calculated on declining balance
method.
 This means, if a borrower takes an income-generating loan of
say, Tk 1,000, and pays back the entire amount within a year in
weekly instalments, she’ll pay a total amount of Tk 1,100, i.e.
Tk 1,000 as principal, plus Tk 100 as interest for the year,
equivalent to 10% flat rate.