SEMINAR REPORT

ON
AN INTRODUCTION TO MICROFINANCE
Session: 2009-11
Submitted in partial fulfillment for the award of degree of master in Business
Administration (MBA)

(JIET Group of Institution)

JIET School of Management for Girls
Jodhpur (Rajasthan)

Submitted By: Submitted To:

Kavita Head of Department
MBA Part-II
 ACKNOWLEDGEMENT

I Express My sincere thanks to my Director, HOD, and Report guide, Dr/MR/Ms Sheetal
soni.Designation lecturer, Department of Management Studies, for guiding me right from
the inception till the successful completion of the project. I sincerely acknowledge him/her
for extending their valuable guidance, support for literature, critical reviews of project and
the report and above all the moral support he/she had provided to me with all stages of this
project. I would also like to thank the other faculty members of Administration Department,
for their help and cooperation throughout our project.
kavita
(Signature of student)

INDEX
1. INTRODUCTION
2. HISTORY OF MICROFINANCE
3. ACTIVITIES OF MICROFINANCE
3.1 MICROFINANCE DEFINITION
3.2 STRATEGIC POLICY INITIATIVES
3.3 PRINCIPLES OF MICROFINANCE
3.4 SALIENT FEATURES OF MICROFINANCE PROGRAMME
3.5 REASONS FOR SUCCESS OF MICROFINANCE
4 SELF HELP GROUPS (SHG)
4.1 DEFINITION
4.2 FEATURES
4.3 FUNCTIONING
4.4 CHARACTERISTICS
4.5 SHG- BANK LINKAGE MODEL
5 EVOLUTION AND RECENT DEVELOPMENT
5.1 NATIONAL BANK FOR AGRICULTURE AND RURAL
DEVELOPMENT (NABARD)
5.2 SIDBI TREAD PROGRAMME
5.3 BHARAT INTEGRATED SOCIAL WELFARE AGENCY (BISWA)
5.4 ICICI BANK
5.5 SEWA BANK
5.6 SPANDANA
5.7 MYRADA
5.8 SOCIAL INITIATIVES GROUP (SIG)
5.9 SWARNA JAYANTI GRAN SWAROZGAR YOGANA
5.10 GRAMEEN BANK
6. CONCLUSION
7. BIBLIOGRAPHY
 MICROFINANCE

1. INTRODUCTION

Finance is frequently called the blood of business. Out of around one billion
People in India, 26% are poor (National Statistical Sample Organization, 2000). At
the bottom the poor need credit for small productive assets, working capital,
housing, illness, and emergencies. The demand for credit here is not only large but
heterogeneous as well. Till the 1990s the rural financial system in India was
predominantly supply driven with the state playing a major role in improving the
access to financial services by the poor. While state intervention considerably
improved the outreach of the banking system and expanded rural credit, it also
allowed rent seeking tendencies and credit indiscipline to grow (Nanda, 2000). By
the late 1980s, the rural financial system had virtually collapsed amid heavy
regulations, distraught market conditions, dual lines of control, and mounting
arrears.
The beginning of 1990 saw India face one of its worst balances of payment crises.
In 1991, under the initiative of the International Monetary Fund, India undertook a
liberalization of its economy. Liberalization had an important bearing on the
financial sector; banks, which had turned weak, were confronted with the challenge
of making themselves profitable while maintaining their prudential requirements and
competing with private and foreign banks in a new liberalized milieu. In India, the
adaptation of the new microfinance approach by rural financial institutions assumed
the form of the “Self-Help Group–Bank Linkage Program.” After an initial pilot study
the Reserve Bank of India (RBI) set up a working group on nongovernmental
organizations (NGOs) and Self Help Groups (SHGs). The working group made
recommendations for internalization of the SHG concept as a potential intervention
tool in the area of banking with the poor. The RBI was quick to accept the
recommendations and advised the banks to consider mainstreaming lending to
SHGs as part of their rural credit operations. The SHG-bank linkage program is
gaining increasing acceptance amongst NGO community and bankers. The
National Bank for Agriculture and Rural Development (NABARD) envisions
covering one third of the rural population in India by establishing one million SHGs.
The government of India has already made announcements for linking 2,00,000
SHGs by year 2002–03. The task force on microfinance sees the SHG – Bank
Linkage Program emerging as a major way of banking with the poor in coming
years. It is estimated that at least 25,000 bank branches, 4000 NGOs, and 2000
federations of SHGs involving 0.10 million personnel of these institutions will be
involved in scaling up microfinance to this magnitude. Under the SHG – Bank
Linkage Program, NGOs and banks interact with the poor, especially women, to
form small homogenous groups. These small groups are encouraged to meet
frequently and collect small thrift amounts from their members and are taught
simple accounting methods to enable them to maintain their accounts. Although
individually these poor could never have enough savings to open a bank account,
the pooled savings enable them to open a formal bank account in the name of the
group. This is the first step in establishing links with the formal banking system.
Groups then, meet often and use the pooled thrift to impart small loans to members
for meeting their small emergent needs. This saves them from usurious debt traps
and thus begins their empowerment through group dynamics, decision-making, and
funds management. Gradually the pooled thrift grows and soon they are ready to
receive external funds in multiples of their group savings. Bank loans enable th
group members to undertake income generating activities.Through the SHG – Bank
Linkage Program the RBI and NABARD have tried to promote relationship banking,
i.e., improving the existing relationship between the poor and bankers with the
social intermediation of NGOs. The Indian model is predominantly a “Linkage
Model,” which draws upon the strengths of various partners: NGOs, who are best in
mobilizing the poor and building their capacities,and bankers, whose financial
strength is financing. As compared to other countries where parallel model of
lending to the poor is predominant, the Indian linkage model tries to use the
existing formal financial network to increase the outreach to the poor, while
ensuring the necessary flexibility of operations for both bankers and the
poor.Various credit delivery innovations such as Grameen Bank Replications, NGO
networking, credit unions, and SHG federations have been encouraged by
NABARD for increasing the outreach. It has also instituted a Micro Credit
Innovations Department for planning, propagating, and facilitating the microfinance
movement. Given the network of institutional structures supporting the microfinance
movement, the SHG – Bank Linkage Program has been increasing its outreach
substantially.Microfinance has been recognised and accepted as one of the new
development paradigms for alleviating poverty through social and economic
empowerment of the poor, with special emphasis on empowering women.
Experiences different anti poverty and other welfare programmes within as well as
outside the country as also by the international organisation have shown that the
key to success lies in the evolution participation in credit delivery and recovery and
linking of formal credit institutions to borrowers through approach have been
recognised as a supplementary mechanism for providing credit support to the rural
poor. Microfinance by definition, refers to the entire range of financial services
rendered to the poor and including skill up-gradation, entrepreneurial development
that would enable them to overcome poverty.

2. History of Microfinance:

It has been approximately 25 years since the birth of Microfinance with the
founding of the Grameen Bank in Bangladesh by Professor Mohammad Yunus.
The field has since spread with the adaptation and evolution of Professor Yunus’
ideas to various countries and contexts. The UN Year of Micro credit in 2005
indicated a turning point for microfinance as the private sector began to take a
more serious interest in what has been considered the domain of NGOs. However,
with all the excitement about the prospects of the field to contribute to poverty
alleviation and the integration of the world’s poor into the rapidly evolving global
market system, the Consultative Group to Assist the Poorest (CGAP) estimates
that microfinance probably reaches fewer than 5% of its potential clients. Although
this is a very rough estimate of those not reached by formal financial institutions, it
might serve to provide a general idea of what share of the potential clients of
microfinance have yet to be reached. India is home to a growing and innovative
 sector of microfinance. With a large portion of the world’s poor, India is likely to
have a large potential demand for microfinance. For this reason, it makes sense to
consider the changing face of microfinance in India, in order to shed light on
comparable changes in the field all over the world.

Microfinance can be defined as financial services targeting and catering to

clients who are excluded from the traditional financial system on account of their
lower economic status. Microfinance can include micro-credit, micro-savings,
micro-insurance and payment services.
Micro-credit is the extension of small loans to micro-entrepreneurs who lack
collateral and do not qualify for traditional bank loans. In developing countries
especially, micro credit enables very poor people to engage in self-employment
projects that generate income. Microcredit is crucial to the microfinance field by
providing access to financial capital. For several decades, many economies,
including the Indian, experimented with subsidized credit for the poor. But the only
tangible outcome perhaps was the increase in Non-Performing Assets (NPA). Then
came the realisation that the core issue for the poor was access to credit rather
than the cost of credit. In fact one of the contributions of microfinance can possibly
be the ‘end of interest rate debate’.
Microfinance has proved time and again that it is access and not interest rates that
are a constraint for the poor. Another discovery followed, that the poor can and will
save, and can indeed use a wide range of financial services such as remittances
facilities and insurance products. The most well known and cited international
example of a micro credit institution is the Grameen Bank in Bangladesh. But there
are numerous others. Even during the Asian financial crisis, Bank 6 Rayat
Indonesia not only survived but thrived; as did BancoSol in Bolivia.

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 actors provide microfinance in India, using a range of
microfinance delivery methods. Since the founding of the Grameen Bank in
Bangladesh, various actors have endeavored to provide access to financial
services to the poor in creative ways. Governments 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.The range of activities undertaken in microfinance
include group lending, individual lending, the provision of savings and insurance,
capacity building, and agricultural business development services. Whatever the
form of activity however, the overarching goal that
unifies all actors in the provision of microfinance is the creation of social value.

3.Activities in Microfinance

Microcredit: It is a small amount of money loaned to a client by a bank or other

institution.
Microcredit can be offered, often without collateral, to an individual or through group
lending.
Micro savings: These are deposit services that allow one to save small amounts
of money for future use. Often without minimum balance requirements, these
savings accounts allow households to save in order to meet unexpected expenses
and plan for future expenses.
Micro insurance: It is a system by which people, businesses and other
organizations make a payment to share risk. Access to insurance enables
entrepreneurs to concentrate more on developing their businesses while mitigating
other risks affecting property, health or the ability to work.
Remittances: Compared with other sources of capital that can fluctuate depending
on the political or economic climate, remittances.
At present lending to the economically active poor both rural and urban is pegged
at around Rs 7000 crores in the Indian banks’ credit outstanding. As against this,
according to even the most conservative estimates, the total demand for credit
requirements for this part of Indian society is somewhere around Rs 2,00,000
crores. Deprived of the basic banking facilities, the rural and semi urban Indian
masses are still relying on informal financing intermediaries like money lenders,
family members, friends etc.

3.1 Microfinance Definition

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.

3.2 Strategic Policy Initiatives

Some of the most recent strategic policy initiatives in the area of Microfinance taken
by the government and regulatory bodies in India are:

 Working group on credit to the poor through SHGs, NGOs, NABARD, 1995
 The National Microfinance Taskforce, 1999
 Working Group on Financial Flows to the Informal Sector (set up by PMO), 2002
 Microfinance Development and Equity Fund, NABARD, 2005
 Working group on Financing NBFCs by Banks- RBI

3.3 Principles of Microfinance:

1. Poor people need a variety of financial services, not just loans. Like everyone
else, the poor need a range of financial services that convenient, flexible, and
affordable. Depending on circumstances, they want not only loans, but also
savings, insurance, and cash transfer services.
2. Microfinance is a powerful tool to fight poverty. When poor people have
access to financial services, they can earn more, build their assets, and
cushion themselves against external shocks. Poor household use
microfinance to move from everyday survival planning for the future they
invest in better nutrition, housing, health and education.

3. Microfinance means building financial systems that serve the poor. In most
developing countries, poor people are the majority of the population, yet they
are the least likely to be served by banks. Microfinance is often seen as a
marginal sector – a “development” activity that donors, governments or social
investors might care about but not as part of the country’s mainstream
financial system. However microfinance will reach the maximum number of
poor clients only when it is integrated into the financial sector.

4. Microfinance can pay for itself and must do so if it is to reach very large
numbers of poor people. Most poor people cannot get good financial services
that meet their needs because there are not enough strong institutions that
provide such services. Strong institutions need to charge enough to cover
their costs. Cost recovery is not an end in itself. Rather, it is only way to reach
scale and impact beyond the limited levels those donors can fund. A
financially sustainable institution can continue and expand its services over
the long term. Achieving sustainability means lowering transaction costs,
offering services that are more useful to the clients and finding new ways to
reach more of the unbanked poor.

5. Microfinance is about building permanent local financial institutions. Finance

for the poor requires sound domestic financial institutions that provide
services on a permanent basis. These institutions need to attract domestic
savings, recycle those savings into loans and provide other services. As local
institutions and capital markets mature, there will be less dependence on
funding from donors and governments including government development
banks.

6. Micro credit is not always the answer. Micro credit is not the best tool for
everyone or every situation. Destitute and hungry people with no income or
means of repayment need other kinds of support before they can make good
use of loans. In many cases other tools will alleviate poverty better – for
instance, small grants, employment and training programs or infrastructure
improvements. Where possible such services should be coupled with building
savings.

7.The role of government is to enable financial services, not to provide them

directly. National governments should set policies that stimulate financial
services for poor people at the same time as protecting deposits.
Governments need to maintain macroeconomic stability, avoids interest rate
caps and refrain from distorting markets with subsidized, high default loan
programs that cannot be sustained. They should also clamp down on
corruption and improve the environment for micro- businesses including
access to markets and infrastructure. In special cases where other funds are
unavailable, government funding may be warranted for sound and
independent MFIs.
.
8..The key bottleneck is the shortage of strong institutions and managers.
Microfinance is a specialized field that combines banking with social goals.
Skills and systems need to be built at all levels; managers and information
systems of microfinance institutions, central banks that regulate microfinance,
other government agencies and donors. Public and private investments in
microfinance should focus on building this capacity, not just moving money.

9.Microfinance works best when it measures and discloses its performance.

Accurate standardized performance information is imperative, both financial
information (e.g. interest rates, loan repayment, and cost recovery) and social
information (e.g. number of clients reached and their poverty level). Donors,
investors, banking supervisors and customers need this information to judge
their cost, risk and return.

3.4 Salient features of Microfinance Programme:

Under the scheme of Microfinance Programme the following activities would

be undertaken:

1. Arranging fixed deposits for MFIs/NGOs:

The SIDBI is already running a Microfinance Programme with a network of
capacity assessed rated MFIs/NGOs. The scheme of Microfinance Programme has
been tied up with SIDBI by way of contributing towards security deposits required
from the MFIs/NGOs to get loans from SIDBI as per details given under:

a. The GOI will provide funds for Microfinance Programme to SIDBI, which shall
be called ‘Portfolio Risk Fund’ (PRF). This fund would be used for security
deposit requirement of the loan amount from the MFIs/NGOs and to meet the
cost of interest loss. At present, SIDBI takes fixed deposits equal to 10% of
the loan amount. The share of MFIs/NGOs would be 2.5% of the loan amount
(i.e. 25% of the security deposit) and balance 7.5% (i.e. 75% of the security
deposit) would be adjusted from the funds provided by the GOI. The
MFIs/NGOs may avail the loan from the SIDBI for further on lending on the
support of the security deposit.

b. The Government would provide the needed fund in four years of the Xth Plan
and release the fund on half yearly basis based on demands for security
deposit. By contributing an amount of Rs. 6 crore during the Xth Plan under
Microfinance Programme, SIDBI can provide loan of Rs. 80 crore to
MFIs/NGOs. This would benefit approximately 1.60 lakhs beneficiaries,
assuming an average loan of Rs. 5,000/- beneficiary.

c. The SIDBI will pay interest to the Government on the fixed deposit made
available by the Government at the same rate as followed to NGOs. Other
terms and conditions will be fixed mutually by SIDBI and GOI.

D. The recovery of loan/interests will be the sole responsibility of the SIDBI. In

case of non recovery of loan, SIDBI would first adjust fixed deposit and
interests accrued thereon for 2.5% security deposit of the loan pledged by the
MFIs/NGOs and thereafter adjust 7.5% security deposit of the loan amount
provided by the GOI and the interest accrued thereon with the approval of
committee of the GOI.

e. After full recovery of loan from the MFIs/NGOs, the 7.5% security deposit of
the loan amount provided by the GOI and the interest accrued thereon would
be rotated further as a security deposit for MFIs/NGOs with the approval of
committee of the GOI or the same will be returned to the GOI.

f. As SIDBI is already running the Microfinance Programme, they will monitor

the scheme. They would also provide the monthly/ quarterly progress report
along with details of beneficiaries, utilization of funds provided by GOI and
loan sanctioned/ utilized by the beneficiaries.
g. The activities covered under the scheme are manufacturing, service sector
and non-farming activities.

2. Training and studies on Microfinance Programme:

The GOI would help SIDBI in meeting the training needs of NGOs, SHGs,
intermediaries and entrepreneurs and also in enhancing awareness about the
programme. This task would be performed through National Level
Entrepreneurship
Development Institutes (EDIs) and Small Industries Service Institutes (SISIs). The
Research Studies would also be arranged through reputed agencies.

3. Institute building for ‘Intermediaries’ for identification of viable projects:

The GOI would help in institution building through identification and
development of intermediary organisation, which would help the NGOs/SHGs in
identification of product, preparation of project, working out forward and backward
linkages and infixing marketing/ technology ties-ups. The SISIs would help in the
identification of such intermediaries in different areas.

3.5 REASON FOR SUCCESS OF MICRO FINANCE

Important reason for success of Grameen bank the pioneer of Micro Finance are its
women borrowers. As of January, 2008, Grameen bank has 7.44 million borrowers,
97 percent of whom are women. It has repayment rate of 99%.Hunger and poverty
are women issue rather then male issue. Women experience hunger and poverty in
much more intense way then men. The women, not men, have to suffer every
moment with their poverty 9 stricken children, to whom they gave birth. They have
to bear the grief of their children’s hungriness, pain of their sick children lacking
enough treatment or medicine, and so on. The mother has to go through the
traumatic experience of not being able to breastfeed her infant during the days of
famine and scarcity. The men, the heads of the households, of most of such
poverty stricken families stay outside home for most of the day (morning to
evening). They even stay outside for many days or weeks in search of work or to
do work. If one of the family member has to starve, it is an unwritten law it has to be
mother. Being poor in Bangladesh is tough for everyone, but being poor women is
toughest of all. When she is given the smallest opportunity, she struggles extra
hard to get out of poverty. A poor women is totally insecure: she is insecure in her
husband’s house because he can throw her out any time he wishes. If she is
divorced and returns to her parents, she becomes disgraces and is unwanted
there. So given any opportunity a poor woman wants to build up her security. In
Bangladesh it became evident that destitute women adapted quicker and better to
self-help process than men. Borrower must join a group of other borrowers who all
share some responsibility for other members’ loans and are encouraged to make
group decisions. So there is considerable peer pressure and support from the
group to encourage them to pay it all back. Eligibility for a subsequent loan
depends upon repayment of first loan, borrowers know that they cannot borrow
again if they don’t repay the first loan.

4. Self Help Group

Definition of SHG:

SHG is a homogeneous affinity group of rural poor, voluntarily formed to save

whatever amount they can conveniently save out of their earnings and mutually
agree to contribute to a common fund of the group to be lent to the members for
meeting their productive and emergent credit needs at such rate of interest, period
of loan and other terms which the group may decide. Since the groups are not
normally registered, the number of members should not exceed 20.
3.1.1 How are groups formed?
When we speak to families in a locality, we will find that some kind of mutual
liking already exists between many of them. Some known reasons for mutual
affinities are:
Similar experience of poverty.
Similar condition of living.
Same kind of livelihood.
Same community or caste.
Same place of origin.
3.1.2 How consider the family is poor for forming SHGs?
For this ask the following questions. If ‘Yes’ is answer for three or four of
these questions, consider that the family is poor.
1. Does the family have only one earning member?
2. Does the family bring drinking water from faraway place?
3. Are the women compelled to go far in the open in the absence of latrine?
4. Are there old illiterate member in the family?
5. Are there permanently ill members in the family?
6. Are there children in the family who do not go to school?
7. Is there a drug addict or a drunkard in the family?
8. Is their house made of kuccha material?
9. Do they regularly borrow from the moneylender?
10.Do they eat less than two meals a day?
11.Do they belong to Scheduled Castes or Scheduled Tribes?

4.1 Features of SHGs:

Transparency in operations.
Intimate knowledge of each other’s intrinsic strengths, needs and problems.
Have a common fund.
Have simple and responsive rules.
Collective decision- making.
Collateral free loans, terms decided by the group.
External influence kept to the least.
Conflict solving through collective leadership and mutual discussions.

In the nutshell, the SHGs function on the principles of five “P”s.

Propagator of voluntarism.
Practitioner of mutual help.
Provider of timely emergency loans.
Promoter of thrift and savings.
Purveyor of credit.
4.2 Functioning of SHGs:

Simple rules are required for SHGs function. The following are some important
rules:
Common agreement on when to meet.
Decision on time and place of meetings.
Agreed penalties for non attendance.
Agreement on amount of savings.
Giving small loans to each other.
Taking loan from banks.
Training of the members is an important need for proper functioning of SHGs.
These areas for training could do well to the members:
Basic mathematics.
Writing of books.
Scheduling of meetings.
Social aspect of like women empowerment.
Basics of lending money, borrowing, repaying.

4.3 Characteristics of SHGs:

The membership of a group may be generally 10 to 20. However, under

SGSY scheme, a group of 5persons can be formed for the purpose of minor
irrigation and in case of disabled person.
From one family, only one member.
The groups may be registered or un-registered.
The groups should devices a code of conduct bylaws to bind themselves.
Internal savings mobilized by its members is the core of SHG.
The group to decide the rate of interest to be paid/ charged on savings/ credit
to members.
The group should function in a democratic way allowing free exchange of
views and participation by members.
The group should maintain simple maintain simple basic records such as
Minute book, membership register, savings and credit registers.
The group to open a Savings Bank account with the bank.
Philosophy of linkage with bank-
The poor have capacity to save.
The poor is bankable.
The credit flows the thrift.
The bank’s loan is to the group and not through the group.
NGOs or other organisation may function as the facilitator.
Peer pressure as a substitute to the collateral.
Gradual increase in the flow of credit contingent upon group strength.

4.4 SHGs-Bank Linkage Model

NABARD is presently operating three models of linkage of banks with SHGs and
NGOs:
Model – 1: In this model, the bank itself acts as a Self Help Group Promoting
Institution (SHPI).
It takes initiatives in forming the groups, nurtures them over a period of time and
then provides credit to them after satisfying itself about their maturity to absorb
credit. About 16% of SHGs and 13% of loan amounts are using this model (as of
March 2002).

Model – 2: In this model, groups are formed by NGOs (in most of the cases) or by
government agencies. The groups are nurtured and trained by these
agencies...This model has also been popular and more acceptable to banks, as
some of the difficult functions of social dynamics are
externalized. About 75% of SHGs and 78% of loan amounts are using this model.
 Model – 3: Due to various reasons, banks in some areas are not in a position to
even finance SHGs promoted and nurtured by other agencies. In such cases, the
NGOs act as both facilitators
and micro- finance intermediaries. First, they promote the groups, nurture and train
them and then
approach banks for bulk loans for on-lending to the SHGs. About 9% of SHGs and
13% of loan amounts are using this model.

5. EVOLUTION AND RECENT DEVELOPMENTS

Starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few

other countries extended tiny loans to groups of poor women to invest in micro-
businesses. This type of microenterprise credit was based on solidarity group
lending in which every member of a group guaranteed the repayment of all
members. These "microenterprise lending" programs had an almost exclusive
focus on credit for income generating activities (in some cases accompanied by
forced savings schemes) targeting very poor (often women) borrowers.

• ACCION International, an early pioneer, was founded by a law student, Joseph

Blatchford, to address poverty in Latin America's cities. Begun as a student-run
volunteer effort in the shantytowns of Caracas with $90,000 raised from private
companies, ACCION today is one of the premier microfinance organizations in the
world, with a network of lending partners that spans Latin America, the United
States and Africa :
The following are the various Indian and international Microfinance
Institutions:

5.1 National Bank for Agriculture and Rural Development

(NABARD)

National Bank for Agriculture and Rural Development (NABARD) came into
existence on July 12, 1982 as an apex institution in agriculture and rural
 development by merging together Agriculture Credit Department of Reserve Bank
of India (RBI) and the Agriculture Rural Development Co-operatives (ARDV), which
was set up in 1963 to meet the long term credit needs of the rural areas. The RRBs
and co-operative sector came under NABARD and it provides finance to
commercial banks.

Role of NABARD:

Linkage programme on pilot basis was started by NABARD in 1992.

NABARD involves bankers, formal and informal entities to promote and
nurture groups.
Provides 100% refinance to banks, considers as priority sector lending,
provides bulk lending & Revolving Fund Assistance(RFA) to NGOs.
Conducts training & workshops for NGOs, Bank Staff & SHGs.
Policy advocacy and publicity.
Operates Micro Finance Equity and Development Fund (MEDF).

Promotional Support- MFI Bank Linkage:

NABARD has taken various initiatives to support Micro Finance Institutes (MFIs) to
strengthen them as given bellow:

1. Rating of Micro Finance Institutions (MFIs):

In order to identify, classify and rate Micro Finance Institutions (MFIs) and
empower them to intermediate between the lending banks and the clients,
NABARD had introduced a scheme for providing financial assistance by way of
grant to Commercial Banks, Regional Rural Banks and Co-operative Banks to avail
of the services of accredited rating agencies for rating of MFIs. Banks can avail the
services of credit rating agencies viz. CRISIL, M-CRIL, ICRA, CARE and Planet
Finance for rating of MFIs and avail financial assistance by way of grant to the
extent of 100% of the total professional fees of the credit rating agency subject to a
maximum of Rs. 1.00 lakh. The facility is available for the first rating of a MFI with a
 minimum loan outstanding of Rs. 50.00 lakh annum and maximum loan outstanding
Rs. 500.00 lakh. The scheme will be operational up to 31 March 2010. So far, on
commercial bank has availed the assistance for rating of MFI i.e. Bharat Integrated
Social Welfare Agency in Orissa State.

2. Capital / Equity Support to Micro Finance Institutions (MFIs):

In pursuance of the announcement made in the Union Budget 2005-06, a

scheme called “Capital/ Equity Support to MFIs from Micro Finance Development
and Equity Fund (MFDEF)” was announced under which capital/ equity support to
various types of MFIs would be provided to enable them to leverage capital/ equity
for accessing commercial funds from banks. During 2006-07, three MFIs viz.
Rashtriya Grameen Vikas Nidhi (RGVN), Guwahati (Assam), Sangamitra Rural
Financial Services have been sanctioned capital/ equity supports of Rs. 100 lakh
each.

3. Revolving Fund Assistance (RFA) to MFIs:

NABARD provides loan funds in the form of Revolving Fund Assistance (RFA)
on a very selective basis to MFIs. The RFA provided to these agencies is
necessarily to be used for on- lending to SHGs or individuals and the amount is to
be repaid along with the service charge within a stipulated period of 5 to 6 years.
This enables them to build a ‘credit history’, which would help them to access credit
facilities through the regular banking channels. During 2006-07, RFA of Rs. 1 crore
was Sanctioned to Rashtriya Gramin Vikas Nidhi, Guwahati (Assam). Cumulatively,
RFA of Rs. 2832.00 lakh was sanctioned to 32 agencies and Rs. 2163.8 lakh has
been released against which Rs. 615.2 lakh stands outstanding against 9 agencies.

5.2 SIDBI’S TREAD Programme:

The Government of India (GOI) has identified SIDBI as a major partner for
implementing the United Nations Development Programme (UNDP) supported.
Trade Related Enterpreneurship Assistance and Development (TREAD) programme
 for women. Under this programme. GOI is providing financial support for capacity
building to financial intermediaries, while the loan component is provided by SIDBI.
Micro Vision:
 The set as the principal financial institution , financing and development of industry in the
small scale sector, and
 To coordinate the functions of the institutions engaged in promoting. Financing or developing
industry in the small-scale sector.
SIDBI has emerged as a major purveyor of a wide variety of financial services
to the small scale sector through its direct finance, refinance, equity finance and
other schemes of assistance, besides extending support services

SIDBI’S Microcredit Scheme : The SIDBI foundation for Micro Credit (SFMC)
came into operation in January 1999 with re mission to create a national network of
strong viable and sustainable microfinance institutions (MFs) form the informal and
formal sector to provide microfinance services to the poor. Especially women. “The
setting up of SFMC also resulted in the constraints faced during the pilot phase of
MCS which began in 1994.

Range of Services: Understand approach and dispensation, SFMC is following a

multi – pronged strategy and at the overall growth of the microfinance sector in
India SFMC is providing based financial assistance to select partner MF is for
meeting Mahila Vikas Nidhi (MVN) is SIDBI’s specially designed fund for economic
development of women, especially the rural poor, by providing them avenues for
training and employment opportunities. A judicious mix of loan and grant is
extended to accredited NGOs for creation of training and other infrastructural
facilities. The basis activity involves setting up of Training-cum-Production Centers
(TPCs) by the assisted NGOs to ensure that women are provided with training and
employment opportunities. In addition, activities like vocational training.
Strengthening of marketing set up for the products of the beneficiary group
arrangements for supply of improved inputs, production and technology
improvement are also covered under the MVN scheme. Assistance is give mainly
towards capital expenditure and support of a recurring nature is discouraged.
5.3 Bharat Integrated Social Welfare Agency (BISWA) :

BISWA is an NGO focused on developmental activities in Orissa, India. They state

their three key activities being (1) Microfinance: (2) Microenterprise: and (3) Social
Development. The organization operates in 22 districts with 72000 members
organized in 4700 Self Help Groups (SHGs). Out of which 38000 clients have
accessed the microfinance program. BISWA, has also initiated programs in
microenterprise, education, human and child rights, marketing and production
linkages, and health care. In collaboration with BISWA, the Center is conducting a
study to examine the impact of insecticide treated nets (ITNs) on health (particularly
malarial morbidity and mortality), productivity, and willingness to pay, led by
Professors Aprajit Mahajan (Stanford University) and Alessandro Tarozzi (Duke
University).

5.4 ICICI Bank: ICICI Bank is India’s second largest bank and its largest private
sector bank with a significant presence in Retail Banking, Commercial Banking,
Project Finance and Financial Markets and through its subsidiaries in Life
Insurance, General Insurance, Investment Banking and Venture Capital. ICICI
Bank has recently built a significant presence in the rural and microfinance
segment in India. It is a comprehensive provider of services including credit.
Insurance (life, accident, health and weather), remittance and investment products
in rural India with an outreach to over 5,00,000 rural and poor households. The
business is being scaled up to cover new geographies and extend a broader range
of financial services.

5.5 Spandana:

Spandana is one of the fastest growing MFls in India based in the state of Andhra
Pradesh, India. It is one of ICICI Bank’s leading partners in partnership model and
operates in 4 districts covering 848 villages and slums through its microfinance
program. Apart from offering standard and innovative savings, loans and insurance
products to the poor it also offers non-financial services through both not-for-profit
and corporate partnerships. They are the only alpha plus rated organization (2003-
04) in India (M-CRIL Rating January, 2004) Professor Abhijit Banerjee and Esther
Duflo from the poverty Action Lab, MIT in collaboration with Spandana and CMF
are conducting and impact evaluation of micro credit in 100 slums of Hyderabad
(Andhra Pradesh).

5.6 MYRADA :

MYRADA stands for Mysore Resettlement and Development Agency. MYRADA

was started in 1968. Its history can be divided into two periods. From 1968 to
1978079 MYRADA was involved entirely in the resettlement of Tibetan Refugees.
From 1978-79 MYRADA has been involved with the rural poor. MYRADA has
initiated a District strategy in four Districts, through a network of NGOs Banks and
private institutions to foster livelihood strategies through the promotion of Self-Help
Affinity Groups (SAGs) Watershed Management Associations, Organic Farming,
Integrated Pest Management, technical support for off-farm livelihoods, preventive
health and functional literacy.

5.7 Social Initiatives Group (SIG) :

SIG is the not-for-profit group promoted by ICICI Bank for initiatives to improve the
capacity of the poor group India to participate in the socio-economic processes.
The SIG believes that the three fundamental capacities any individual should
possess to be able to participate in the larger economy are in the areas of health,
education and access to basic financial services. Within these broad areas it
focuses on infant health at birth. Elementary education and micro financial services.
The SIG funds initiatives in the 3 focus areas and ensures that the key issues –
cost effectiveness, scalability and impact assessment – are addressed in any
program it supports. The SIG also promotes active dissemination of research
(analysis/finding/recommendations) and partnerships in these areas
5.8 SWARNA JAYANTI GRAM SWAROZGAR YOJANA

SGSY, which was launched in April 1999, is a holistic program of the Central
Government covering all aspects of poverty alleviation, providing employment/ self
employment, organising poor into Self Help Groups, etc. The basic objective of the
program was to bring 30% of the BPL families above the poverty line. All earlier
programs like Integrated Development program (IRDP), Development of Women
and Children in Rural Areas (DWCRA), Gram Kalyan Yojana (GKY) and Million
Well Scheme (MWS) were merged with SGSY. Under this program, families (not
the individuals) are the focal point of the development initiatives.
The BPL families are organised into SHGs and assistance package includes
loan, subsidy, training, capacity building, infrastructure and development of linkage
subsidy @ 50% and 30% of the project cost, with ceiling of Rs. 10,000/- and Rs.
7500/-, is provided to the beneficiaries to belonging to SC/ST category and others,
respectively. There is no ceiling on amount of subsidy for minor irrigation purposes.
For group activity of the SHGs, subsidy is provided to the extent of 50% of the
project cost, subject to a maximum of Rs. 1.25 lakh per group. SHGs are also
provided a revolving fund of Rs. 25,000/- for their internal lending for which subsidy
of Rs. 10,000/- is provided by the District Rural Development Agency (DRDA), out
of the total funds allocated for SGSY in district, 20% is to be utilized for
infrastructure development and 10% for training of beneficiaries. This program is
being implanted by DRDA in the district, which has identified block-wise key
activities, that can be taken up under the program. DRDA, Pune has also set up a
marketing outlet “SAVITRI” for sale of the products of SHGs, assisted under SGSY
and other programs. The performance of Pune district in the implementation of this
program has been noteworthy and the targets fixed under the program are being
achieved regularly. The district has also won state level awards for best
performance in the implantation of this program.
5.9 SEWA Bank

In 1972 the Self Employed Women's Association (SEWA) was registered as a trade
union in Gujarat (India), with the main objective of "strengthening its members'
bargaining power to improve income, employment and access to social security." In
1973, to address their lack of access to financial services, the members of SEWA
decided to found "a bank of their own".

5.10 Grameen Bank

In Bangladesh, Professor Muhammad Yunus addressed the banking problem faced

by the poor through a programme of action-research. With his graduate students in
Chittagong University in 1976, he designed an experimental credit programme to
serve them. It spread rapidly to hundreds of villages. Through a special relationship
with rural banks, he disbursed and recovered thousands of loans, but the bankers
refused to take over the project at the end of the pilot phase. They feared it was too
expensive and risky in spite of his success. Eventually, through the support of
donors, the Grameen Bank was founded in 1983 and now serves more than 4
million borrowers. The initial success of Grameen Bank also stimulated the
establishment of several other giant microfinance institutions like BRAC, ASA,
Proshika, etc.


 6. CONCLUSION

The Indian economy at present is at a crucial juncture, on one hand, the optimists
are talking of India being among the top 5 economies of the world by 2050-47 and
on the other is the presence of 260 million poor forming 26 % of the total
population. The enormity of the task can be gauged from the above numbers and if
India is to stand among the comity of developed nations, there is no denying the
fact that poverty alleviation & reduction of income inequalities has to be the top
most priority. India’s achievement of the MDG of halving the population of poor by
2015 as well as achieving a broad based economic growth also hinges on a
successful poverty alleviation strategy.
7. BIBLIOGRAPHY
1 GOOGLE-search engine
2 ‘Banking service operation’, ICFAI publisher
3 Wikipedia