Published on August 13, 2010
Slide 1: Concept, Scope and limitations Designed by Shashank Shukla, [email protected] In this discussion we are trying to understand : In this discussion we are trying to understand Poverty What is Microfinance? It’s origin Poverty and micro-credit Process of micro-credit Advantages of micro-credit IGL and group lending model Social Impact of Microfinance Scope and Limitations of Microfinance Poverty : Poverty Poverty means being unable to afford basic human needs, such as clean water, nutrition, health care, education, clothing and shelter. Poverty; 2 Types : Poverty; 2 Types Absolute Poverty or destitution. Relative Poverty is the condition of having fewer resources or less income than others within a society or country, or compared to worldwide averages What is microfinance ? : What is microfinance ? Micro finance is the provision of financial services - To those who are excluded from conventional commercial financial services. Because they are too poor to offer much - or anything - in the way of collateral What is microfinance ? : What is microfinance ? It presents a series of exciting possibilities for: Extending markets, reducing poverty and Fostering social change. Origin of Microfinance : Origin of Microfinance The concept of micro finance originated in the mid-1970s in Bangladesh through a pioneering experiment by Dr Muhammad Yunus, then a Professor of Economics. Origin of Microfinance : Origin of Microfinance Dr. Mohammad Yunus Established Bangladesh Grameen Bank to:- Providing financial services and entrepreneurship opportunities to poor So they could produce, manage and maintain their own finances. It was an end to mistreatment by money lenders Micro-credit : Micro-credit Is the most common form of Microfinance It means the provision of small loans to entrepreneurs who are too poor to qualify for conventional bank loans. Process of Micro Loan distribution : Process of Micro Loan distribution A micro credit program gives small loans to the poor so that they can procure whatever they need to start a small local business of their choice Process of Micro Loan distribution : Process of Micro Loan distribution A micro loan of Rs.5000 - 20000 at 1 or 1.5% interest per month, can empower people to start their own business Process of Micro Loan distribution : Process of Micro Loan distribution By that money they can start business of: A Kirana Shop A bangles shop : A bangles shop Buy a cow or buffalo to sell milk : Buy a cow or buffalo to sell milk Candle Making : Candle Making Small garments manufacturing unit : Small garments manufacturing unit Fruit and vegetable shop : Fruit and vegetable shop Process of Micro Loan distribution : Process of Micro Loan distribution In the absence of collateral, the loans are made to groups of five, mostly women, who guarantee each others' loans. Called Joint liability Group (JLG) Process of Micro Loan distribution : Process of Micro Loan distribution If a woman wants to receive a loan and if her idea for a business is accepted, she is encouraged to find four other women and form a group. Process of Micro Loan distribution : Process of Micro Loan distribution Then, the first two women are given loans and the others are encouraged to help them make their enterprise a success. After about 6 weeks, if the first two are making their payments on time, the next two women get their loans and six weeks later the last one. Process of Micro Loan distribution : Process of Micro Loan distribution All persons who have paid back a first loan, are automatically eligible for a second loan and eventually a third so their businesses can grow Process of Micro Loan distribution : Process of Micro Loan distribution At the same time from the interest, the loan fund is growing, though slowly, and loans are available to more persons. Process of Micro Loan distribution : Process of Micro Loan distribution If one does not pay back one's loan, no one in the group will receive a second loan Process of Micro Loan distribution : Process of Micro Loan distribution To guard against emergencies, such as one's cow dying and not being able to repay the loan, an emergency fund is set up at the time of the first loan. This simply means that a few coins, perhaps an additional Group Lending Model : Group Lending Model The Most successful micro-credit concept A very disciplined and systematic model. It simply means borrowers take each other’s guarantee for the repayment of loan. Group Lending Model : Group Lending Model First, All potential borrowers undergo financial literacy training and must pass a test before they are allowed to take out loans. Group Lending Model : Group Lending Model Weekly meetings with borrowers follow a highly disciplined approach. Re-payment rates on these collateral-free loans are as high as 99% because of this systematic process Social Impact of Microfinance : Social Impact of Microfinance The empowerment of women As the microfinance services mostly offered to women; they are now more financially literate and confident Social Impact of Microfinance : Social Impact of Microfinance Building Economic citizenship Financial services foster Independence. Microfinance can help clients to grow more confident and with that economic citizenship they can step out and become a part of main stream of society. Social Impact of Microfinance : Social Impact of Microfinance To fight with poverty Financial services give clients to access to education, healthcare, and other necessities that improves their quality of life. i.e. school fee loan, health insurance and home improvement loan. Social Impact of Microfinance : Social Impact of Microfinance Normally If a poor household loses a source of income he might have to withdraw a child from school or selling valuable assets or fall deep into poverty. Social Impact of Microfinance : Social Impact of Microfinance protecting against vulnerabilities Financial services like saving, credits and insurance provide sustainable and low cost coping strategies. They can re-build there assets or alternate source of income without falling in poverty Scope of Microfinance : Scope of Microfinance In India, Micro finance is growing faster than banking and, if the experience in other developing countries is mirrored here, microfinance “will reach more individuals than the banking sector,” - Robert Annibale, global director Citigroup Inc. Microfinance Scope of Microfinance : Scope of Microfinance Nos. of Clients in Millions *For 2015 the projection sourced from citigroup microfinance Top Microfinance Cos. In India : Top Microfinance Cos. In India SKS Microfinance Ltd. Basics Microfinance Ltd. Share Microfin Limited Spandana Sphoorty Financial Ltd (SSFL) Asmitha Microfin Ltd Bandhan And many more for more details please visit to http://business.mapsofindia.com Limitations : Limitations Micro Loans should never lends to individuals without first providing them with the expertise and training to build a business plan that is likely to succeed. Limitations : Limitations Micro finance is mainly intended for social investment with the focus on poverty reduction. The utilization of funds depends on the capacity of the poor clients productively use it, at bottom level towards creating a sustainable social impact Limitations : Limitations Another point in this regard is that mere flow of funds alone in MF sector cannot bring desired level of social impact unless other infrastructure is enough in the given area/region to absorb the funds Thank you! : Thank you!