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 CHAPTER-1
INTRODUCTION

1.2 MEANING OF MICROFINANCING

Microfinance is defined as any activity that includes the provision of financial services such as
credit, saving 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 saving for risk mitigation and consumption something. A large
variety of actors provide microfinance in India, using a range of delivery methods. Since the
founding of 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.
This has resulted in a rather broad definition of microfinance as any activity that target poor and
low-income individuals for the provision of financial services. The range of activities undertaken
in microfinance include group lending, individual lending, the provision of saving 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.

DEFINITION:

According to International Labor Organization (ILO), “microfinance is an economic

development approach that involves providing financial services through institutions to low
income clients”.


In India Microfinance has been defined by “The National Microfinance Taskforce, 1990” as
“provision of thrift, credit and other financial services and products of very small amount to the
poor in rural, semi-urban or urban areas for enabling them to raise their income levels and
improve living standards”.

1.2 FEATURES OF MICROFINANCE

Microfinance services are aimed at the poor clients, who do not have access to formal financial sources.
Microfinance has its unique features, which are follows:

 Mostly it is collateral free.

 MFIs go to clients rather than clients going to MFIs.

 Simplified savings and loan procedures.

 Small size of loans and savings.

 Repeat loans.

 Loan size increases in the repeated loans or subsequent cycles.

 Interest rate is usually in between money lenders and formal banks.

 Free use of loans (no restrictions on specified purpose).

 Repayment considers incomes from business as well as other sources.

 Loans and saving products within manageable numbers.


MICROFINANCE STANDARDS AND PRINCIPLES:

(A group of Indian women have assembled to make bamboo products that they intend to resell)

Poor people borrow from informal moneylenders and save with informal collectors. They receive
loans and grants from charities. They buy insurance from state-owned companies. They receive
funds transfers through formal or informal remittance networks. It is not easy to distinguish
microfinance from similar activities. It could be claimed that a government that orders state
banks to open deposit accounts for poor consumers, or a moneylender that engages in usury, or a
charity that runs a heifer pool are engaged in microfinance. Ensuring financial services to poor
people is best done by expanding the number of financial institutions available to them, as well
as by strengthening the capacity of those institutions. In recent years there has also been
increasing emphasis on expanding the diversity of institutions, since different institutions serve
different needs

Some principles that summarize a century and a half of development practice were encapsulated
in 2004 by CGAP and endorsed by the Group of Eight leaders at the G8 Summit on June 10,
2004:

1. Poor people need not just loans but also savings, insurance and money transfer services.
2. Microfinance must be useful to poor households: helping them raise income, build up
assets and/or cushion themselves against external shocks.
3. "Microfinance can pay for itself. Subsidies from donors and government are scarce and
uncertain and so, to reach large numbers of poor people, microfinance must pay for
itself.
4. Microfinance means building permanent local institutions.
5. Microfinance also means integrating the financial needs of poor people into a country's
mainstream financial system.


 6. "The job of government is to enable financial services, not to provide them."
7. "Donor funds should complement private capital, not compete with it."
8. "The key bottleneck is the shortage of strong institutions and managers." Donors should
focus on capacity building.
9. Interest rate ceilings hurt poor people by preventing microfinance institutions from
covering their costs, which chokes off the supply of credit.
10. Microfinance institutions should measure and disclose their performance—both
financially and socially.

Microfinance is considered a tool for socio-economic development, and can be clearly

distinguished from charity. Families who are destitute, or so poor they are unlikely to be able to
generate the cash flow required to repay a loan, should be recipients of charity. Others are best
served by financial institutions.

SCALE OF MICROFINANCE OPERATIONS:

Two women talk about financial matters. The woman on the right is a loan officer for the Small
Enterprise Foundation (SEF). The conversation shown is taking place in Tzaneen, South in
February 2010.


No systematic effort to map the distribution of microfinance has yet been undertaken. A
benchmark was established by an analysis of 'alternative financial institutions' in the developing
world in 2004. The authors counted approximately 665 million client accounts at over 3,000
institutions that are serving people who are poorer than those served by the commercial banks.
Of these accounts, 120 million were with institutions normally understood to practice
microfinance. Reflecting the diverse historical roots of the movement, however, they also
included postal savings banks (318 million accounts), state agricultural and development
banks (172 million accounts), financial cooperatives and credit unions (35 million accounts) and
specialized rural banks (19 million accounts).

Regionally, the highest concentration of these accounts was in India (188 million accounts
representing 18% of the total national population). The lowest concentrations were in Latin
America and the Caribbean (14 million accounts representing 3% of the total population)
and Africa (27 million accounts representing 4% of the total population, with the highest rate of
penetration in West Africa, and the highest growth rate in Eastern and Southern Africa ).
Considering that most bank clients in the developed world need several active accounts to keep
their affairs in order, these figures indicate that the task the microfinance movement has set for
itself is still very far from finished.

By type of service, "savings accounts in alternative finance institutions outnumber loans by

about four to one. This is a worldwide pattern that does not vary much by region."

An important source of detailed data on selected microfinance institutions is the Micro Banking
Bulletin, which is published by Microfinance Information Exchange. At the end of 2009, it was
tracking 1,084 MFIs that were serving 74 million borrowers ($38 billion in outstanding loans)
and 67 million savers ($23 billion in deposits).

Another source of information regarding the environment of microfinance is the Global

Microscope on the Microfinance Business Environment, prepared by the Economist Intelligence
Unit (EIU), the Inter-American Development Bank, and others. The 2011 report contains
information on the environment of microfinance in 55 countries among two categories,
Regulatory Framework and the Supporting Institutional Framework. This publication, also
known as the Microscope, was first developed in 2007, focusing only on Latin America and the
Caribbean, but by 2009, this report had become a global study.


As yet there are no studies that indicate the scale or distribution of 'informal' microfinance
organizations like ROSCA's and informal associations that help people manage costs like
weddings, funerals and sickness. Numerous case studies have been published, however,
indicating that these organizations, which are generally designed and managed by poor people
themselves with little outside help, operate in most countries in the developing world.

1.3 HISTORY OF MICROFINANCING

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 an big impact.

The today use of the expression micro financing has it roots in

the 1970s when organizations, such as Garmin 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 it´s 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 Raiffeises´s
village bank movement in Germany which started in 1864 an by
the year 1901 the bank had reached 2 million rural farmers.
Timothy Guinnane means that already then it was proved that
microcredit could pass the two tests concerning peoples pay
back moral and the possibility to provide the financial service to
poor people.

Another organization, The caisse populaire movement

grounded by Alphone and Dorimène 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 expert 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 world´s poorest
people by credits from the world leaders and major financial
institutions.

The year 2005 was proclaimed as the International year of

Microcredit by The Economic and Social Council of the United
Nations in a call for the financial and building sector to “fuel”
the strong entrepreneurial spirit of the poor people around the
world.

The International year of Microcredit consists of five goals:

• Assess and promote the contribution of microfinance to the

MFIs

• Make microfinance more visible for public awareness

understanding as a very important part of the development
situation

• The promotion should be inclusive the financial sector

• Make a supporting system for sustainable access to financial

services


• Support strategic partnerships by encouraging new
partnerships and innovation to build and expand the outreach
and success of microfinance for all

The economics professor Mohammad Yunus and the founder of

Grameen Bank were awarded the Nobel Prize 2006 for his
efforts. The press release from nobelprize.org states:

“The Norwegian Nobel Committee has decided to award the

Nobel Peace Prize for 2006, divided into two equal parts, to
Muhammad Yunus and Grameen Bank for their efforts to create
economic and social development from below. Lasting peace
cannot be achieved unless large population groups find ways in
which to break out of poverty. Micro-credit is one such means.
Development from below also serves to advance democracy and
human rights. Muhammad Yunus has shown himself to be a
leader who has managed to translate visions into practical
action for the benefit of millions of people, not only in
Bangladesh , but also in many other countries. Loans to poor
people without any financial security had appeared to be an
impossible idea. From modest beginnings three decades ago,
Yunus has, first and foremost through Grameen Bank,
developed micro-credit into an ever more important instrument
in the struggle against poverty. Grameen Bank has been a


source of ideas and models for the many institutions in the field
of micro-credit that have sprung up around the world.

Every single individual on earth has both the potential and the
right to live a decent life. Across cultures and civilizations,
Yunus and Grameen Bank have shown that even the poorest of
the poor can work to bring about their own development.
Micro-credit has proved to be an important liberating force in
societies where women in particular have to struggle against
repressive social and economic conditions. Economic growth
and political democracy cannot achieve their full potential
unless the female half of humanity participates on an equal
footing with the male. Yunus’s long-term vision is to eliminate
poverty in the world. That vision cannot be realised by means of
micro-credit alone. But Muhammad Yunus and Grameen Bank
have shown that, in the continuing efforts to achieve it, micro-
credit must play a major part.”

ABOUT MICROFINANCE

Microfinance is a general term to describe financial services to low-income individuals or to

those who do not have access to typical banking services. Microfinance is also the idea that low-
income individuals are capable of lifting themselves out of poverty if given access to financial
services. While some studies indicate that microfinance can play a role in the battle against
poverty, it is also recognized that is not always the appropriate method, and that it should never
be seen as the only tool for ending poverty.


I. The history of modern microfinance

Credit unions and lending cooperatives have been around hundreds of years. However, the
pioneering of modern microfinance is often credited to Dr. Mohammad Yunus, who began
experimenting with lending to poor women in the village of Jobra, Bangladesh during his tenure
as a professor of economics at Chittagong University in the 1970s. He would go on to found
Grameen Bank in 1983 and win the Nobel Peace Prize.

Since then, innovation in microfinance has continued and providers of financial services to the
poor continue to evolve. Today, the world bank estimates that about 160 million people in
developing countries are served by microfinance.

II. Microfinance providers

Microfinance Institutions
A microfinance institution (MFI) is an organization that provides microfinance services. MFIs
range from small non-profit organizations to large commercial banks.

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 non
governmental 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."

WHY DON'T BANKS SERVE POOR PEOPLE?

Formal financial institutions were not designed to help those who don't already have financial
assets - they were designed to help those who do. So what do poor people do?

Credit is available from informal commercial and non-commercial money-lenders but usually at
a very high cost to borrowers. Savings services are available through a variety of informal
relationships like savings clubs, rotating savings and credit associations, and mutual insurance
societies that have a tendency to be erratic and insecure.


Some banks do provide these services, however. Grameen Bank in Bangladesh was formed out
of a project providing small loans to women in the village of Jobra. Bancosol, a commercial bank
in Bolivia, is also a bank which provides microfinance services for the poor of Bolivia.

However, the majority of formal banks do not provide microfinance products as microfinance is
an expensive enterprise - you can make a lot more money on a large loan than a small loan, and
you won't make much money holding savings accounts with very little funds in them. Banks can
make more money if they only provide financial services to those who already have money.

III. COSTS, INTEREST RATES AND SUSTAINABILITY

INTEREST RATES (THEY'RE HIGH)

Sikiratou Salami is from Togo,

she took a loan out to purchase
supplies for her cosmetics
business and plans to use part
of her profits to finance the
schooling of her three children.

There are three kinds of costs the MFI has to cover when it makes microloans. The first two, the
cost of the money that it lends and the cost of loan defaults, are proportional to the amount lent.
For instance, if the cost paid by the MFI for the money it lends is 10%, and it experiences
defaults of 1% of the amount lent, then these two costs will total $11 for a loan of $100, and $55
for a loan of $500. An interest rate of 11% of the loan amount thus covers both these costs for
either loan." The third type of cost, transaction costs, is not proportional to the amount lent. The
transaction cost of the $500 loan is not much different from the transaction cost of the $100 loan.
Both loans require roughly the same amount of staff time for meeting with the borrower to


appraise the loan, processing the loan disbursement and repayments, and follow-up monitoring.
Suppose that the transaction cost is $25 per loan and that the loans are for one year. To break
even on the $500 loan, the MFI would need to collect interest of $50 + 5 + $25 = $80, which
represents an annual interest rate of 16%. To break even on the $100 loan, the MFI would need
to collect interest of $10 + 1 + $25 = $36, which is an interest rate of 36%. At first glance, a rate
this high looks abusive to many people, especially when the clients are poor. But in fact, this
interest rate simply reflects the basic reality that when loan sizes get very small, transaction costs
loom larger because these costs can't be cut below certain minimums.

Profitability and sustainability of MFIs

Some worry that an excessive concern for profit in microfinance will lead MFIs away from poor
clients to serve better-off clients who want larger loans. It is true that programs serving very poor
clients are somewhat less profitable than those reaching better-off clients, but this may say more
about managers' objectives than an inherent conflict between serving the very poor and
profitability. MFIs serving the very poor are showing rapid financial improvement. Microfinance
programs like Bangladesh Rural Advancement Committee and ASA in Bangladesh have already
demonstrated that very poor clients can be reached profitably: both institutions had profits of
more than 4% of assets in 2000.

There are cases where microfinance cannot be made profitable, for example, where potential
clients are extremely poor and risk-averse or live in remote areas with very low population
density. In such settings, microfinance may require continuing subsidies. Whether microfinance
is the best use of these subsidies will depend on evidence about its impact on the lives of these
clients."

IV. MICROFINANCE IMPACT AND OUTCOMES

EVIDENCE THAT MICROFINANCE WORKS


"Gun Keshari has become a
regular borrower of [an MFI]
and over time, with the support
of small, low-interest loans,
Gun Keshari has seen a
dramatic improvement in the
living standards of her family."
- Polly Banks Kiva Fellow,
Nepal

According to CGAP, "Comprehensive impact studies have demonstrated that: Microfinance

helps very poor households meet basic needs and protect against risks; The use of financial
services by low-income households is associated with improvements in household economic
welfare and enterprise stability or growth; By supporting women's economic participation,
microfinance helps to empower women, thus promoting gender-equity and improving household
well-being; For almost all significant impacts, the magnitude of impact is positively related to
the length of time that clients have been in the program."

Poor people, with access to savings, credit, insurance, and other financial services, are more
resilient and better able to cope with the everyday crises they face. Even the most rigorous
econometric studies have proven that microfinance can smooth consumption levels and
significantly reduce the need to sell assets to meet basic needs. With access to micro insurance,


poor people can cope with sudden increased expenses associated with death, serious illness, and
loss of assets. Access to credit allows poor people to take advantage of economic opportunities.
While increased earnings are by no means automatic, clients have overwhelmingly demonstrated
that reliable sources of credit provide a fundamental basis for planning and expanding business
activities. Many studies show that clients who join and stay in programs have better economic
conditions than non-clients, suggesting that programs contribute to these improvements. A few
studies have also shown that over a long period of time many clients do actually graduate out of
poverty.

By reducing vulnerability and increasing earnings and savings, financial services allow poor
households to make the transformation from "every-day survival" to "planning for the future."
Households are able to send more children to school for longer periods and to make greater
investments in their children's education. Increased earnings from financial services lead to better
nutrition and better living conditions, which translates into a lower incidence of illness. Increased
earnings also mean that clients may seek out and pay for health care services when needed,
rather than go without or wait until their health seriously deteriorates. Empirical evidence shows
that, among the poor, those participating in microfinance programs who had access to financial
services were able to improve their well-being-both at the individual and household level-much
more than those who did not have access to financial services.

In Bangladesh, Bangladesh Rural Advancement Committee (BRAC) clients increased household

expenditures by 28% and assets by 112%. The incomes of Garmin members were 43% higher
than incomes in non-program villages.

In El Salvador, the weekly income of FINCA clients increased on average by 145%.

In India, half of SHARE clients graduated out of poverty.

In Ghana, 80% of clients of Freedom from Hunger had secondary income sources, compared to
50% for non-clients.

In Lombok, Indonesia, the average income of Bank Rakyat Indonesia (BRI) borrowers increased
by 112%, and 90% of households graduated out of poverty.

In Vietnam, Save the Children clients reduced food deficits from three months to one month."


Microcredit may be inappropriate where conditions pose severe challenges to loan repayment.
For example, populations that are geographically dispersed or have a high incidence of disease
may not be suitable microfinance clients. In these cases, grants, infrastructure improvements or
education and training programs are more effective. For microcredit to be appropriate, the clients
must have the capacity to repay the loan under the terms by which it is provided.

1.4 BENEFITS OF MICROFINANCING:

Microfinance involves extending small loans, savings and other

basic financial services to people that don’t currently have
access to capital. It’s 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. Considering nearly half
the world survives on less than $2 a day, microfinance is a vital
solution. Here are six benefits of microfinance:

1. Access:- Banks simply won’t extend loans to those with little

or no assets, and generally don’t 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.


 1.5 PRODUCTS OF MICROFINANCE:

Products common used in the microfinance sector today is:

 Micro savings – A possibility to save money without any minimum balance. Allows people to
retain money for future use or for unexpected costs. In SHGs the members save small amounts of
money, as little as a few rupees a month in a group fund. Members may borrow from the group
fund for a variety of purposes ranging from household emergencies to school fees. As SHGs
prove capable of managing their funds well, they may borrow from a local bank to invest in
small business or farm activities. Banks typically lend up to four rupees for every rupee in the
group fund;

 Micro insurance – Gives the entrepreneurs the chance to focus more on their core business
which drastically reduces the risk affecting their property, health or working possibilities. The is
different types of insurance services like life insurance, property insurance, health insurance and
disability insurance. The spectrum of services in this sphere is constantly expanded, as schemes
and terms of providing insurance services are determined by each company individually;

 Micro leasing – For entrepreneurs or small businesses who can´t afford buy at full cost they can
instead lease equipment, agricultural machinery or vehicles. Often no limitations of minimum
cost of the leased object;

 Money transfer – A service for transferring money, mainly overseas to family or friends.
Money transfers without opening current accounts are performed by a number of commercial
banks through international money transfer systems such as Western Union, Money Gram, and
Anelik. On the surface they may seem like small money transfers, but when one considers that
such transactions take place millions of times around the world each week, the numbers start to
become impressive. According to the World Bank, the annual global market for remittances –
money transferred home from migrant workers – is around 167 billion US dollars. The estimated
total is closer to 230 billion dollars if one counts unregulated transactions. Remittances are also
an important source of income for many developing countries including India, China and
Mexico, all of which receive over 20 billion dollars each year in remittances from abroad.


 CHAPTER-2

RESEARCH METHODOLOGY

2.1 RESEARCH METHODOLOGY:

Research means search for knowledge. Research is, thus, an original contribution to the existing
stock of knowledge making for its advancement. It is the pursuit of truth with the help of study,
observation, comparison and experiment. In short, the search for knowledge through objective
and systematic method of finding solution to a problem is research. In other words research
methodology is the systematic process of finding the solution of any research problem.

2.2 NEED OF THE STUDY:

The need of this study is to know the loan requirements of poor people’s for setting up small
businesses and research also increases our knowledge. If we want to study the Micro-financing
facilities to poor people then we have to get their responses towards micro financing. So I can
say that this study on Micro financing is important for me to get the knowledge about micro
financing.

2.3 SCOPE OF THE STUDY:

The scope of my study is restricted to Solan area only. I have conduct research in Solan area and
get the response of people regarding micro financing that what they think about micro financing
and what is the need of improvement in micro financing activities in Solan.


2.4 OBJECTIVES OF THE STUDY:

 To study the awareness level of people towards Micro financing.

 To study the benefits provided thorough Micro financing.

 To study microfinance as a tool to fight against poverty.

2.5 RESEARCH DESIGN:

Decisions regarding what, where, when, how much, by what means concerning an inquiry or a
research study constitute a research design. It constitute blueprint for the collection,
measurement and analysis of data. “A research design is the arrangement of conditions for
collection and analysis of data in a manner that aims to combine relevance to the research
purpose with economy in procedure.”

I have used descriptive research design for the present study.

DESCRIPTIVE RESEARCH DESIGN:

The objective of such a study is to answer the “who, what, when, where and how” of the study
under investigation, descriptive studies are well structured and tend to be rigid and its approach
can’t be changed every now and then. It is therefore, necessary that the researcher give sufficient
thought to farming research question and deciding the type of data to be collected and procedure
to be used for this purpose.

In other words descriptive research studies are those studies which are concerned with describing
the characteristics of a particular individual, or a group.

2.6 SAMPLING DESIGN:

Sampling is the part of statistical practice concerned with the selection of a subset of individuals
intends to yield some knowledge about the populations of concerns especially for the purpose of
making predictions based on statistical inference. Researchers rarely survey the entire


populations for two reasons. The cost is too high, and the population is dynamic in that the
individuals making up the population may change over time.

2.7 SAMPLE SIZE:

I have taken 50 people as sample size.

2.8 SAMPLING TECHNIQUE:

I have used convenience sampling technique for the present study.

CONVEVIENCE SAMPLING:

A statistical method of drawing representative data by selecting people because of the ease of
their volunteering or selecting units because of their availability or easy access.

2.9DATA COLLECTION:

Data collection is a systematic approach to gathering information from a variety of sources to get
a complete and accurate picture of an area of interest.

KINDS OF DATA:

 Primary data: - Primary data is that type of data which is collected by the researcher
from its origin. And it’s a fresh data.

 Secondary data: - Secondary data is that type of data which is easily available and it can
be collected from books magazines journals etc.

I have used primary as well as secondary data for the present study.

2.10 DATA ANALYSIS TOOL:

Percentage method: percentage analysis is the method to represent raw streams of data as a
percentage (a part in 100 percent) for better understanding of collected data.


A tool used for selection of data is questionnaire. A survey was conducted (by way of
questionnaire) to find out whether the customers are satisfied with the existing system. Opinions
were also sort for improving the efficiency in the system.

P = Q/R*100

WHERE

P= Reading in percentage

Q= Number of respondents falling in a specific category to be measured

R= Total no of respondents or it is the populations as a whole

2.11 LIMITATIONS OF THE STUDY:

 Lack of time to conduct research.

 It is very difficult to observe the whole population.
 It is very difficult to get the relevant responses.
 The sample may not be true representative of the entire population.


 CHAPTER-3
LITERATURE REVIEW

Based on work by Eoin Wrenn for Trócaire, 2005

WhatIsMicrofinance

Microfinance, according to Otero (1999, p.8) is “the provision of financial services to low-income poor and
very poor self-employed people”. These financial services according to Ledgerwood (1999) generally include
savings and credit but can also include other financial services such as insurance and payment services. Schreiner
and Colombet (2001, p.339) define microfinance as “the attempt to improve access to small deposits and
small loans for poor households neglected by banks.” Therefore, microfinance involves the provision of financial
services such as savings, loans and insurance to poor people living in both urban and rural settings who are
unable to obtain such services from the formal financial sector.

1. Microfinance and microcredit.

In the literature, the terms microcredit and microfinance are often used interchangeably, but it is important
to highlight the difference between them because both terms are often confused. Sinha (1998, p.2) states
“microcredit refers to small loans, whereas microfinance is appropriate where NGOs
and MFIs1 supplement the loans with other financial services (savings, insurance, etc)”. Therefore
microcredit is a component of microfinance in that it involves providing credit to the poor, but microfinance also
involves additional non-credit financial services such as savings, insurance, pensions and payment services
(Okiocredit, 2005).

2. The History of Microfinance

Microcredit and microfinance are relatively new terms in the field of development, first coming to
prominence in the 1970s, according to Robinson (2001) and Otero (1999). Prior to then, from the 1950s
through to the 1970s, the provision of financial services by donors or governments was mainly in the form of
subsidised rural credit programmes. These often resulted in high loan defaults, high loses and an inability to
reach poor rural households (Robinson, 2001).

Robinson states that the 1980s represented a turning point in the history of microfinance in that MFIs such as
2
Grameen Bank and BRI began to show that they could provide small loans and savings services profitably
on a large scale. They received no continuing subsidies, were commercially funded and fully sustainable, and
could attain wide outreach to clients (Robinson, 2001). It was also at this time that the term “microcredit” came to
prominence in development (MIX3, 2005). The difference between
microcredit and the subsidised rural credit programmes of the 1950s and 1960s was that microcredit insisted
on repayment, on charging interest rates that covered the cost of credit delivery and by focusing on clients
who were dependent on the informal sector for credit (ibid.). It was now clear for the first time that microcredit
could provide large-scale outreach profitably.

The 1990s “saw accelerated growth in the number of microfinance institutions created and an increased emphasis
on reaching scale” (Robinson, 2001, p.54). Dichter (1999, p.12) refers to the 1990s as “the microfinance
decade”. Microfinance had now turned into an industry according to Robinson (2001). Along with the growth
in microcredit institutions, attention changed from just the provision of credit to the poor (microcredit), to the
provision of other financial services such as savings and pensions (microfinance) when it became clear that
the poor had a demand for these other services (MIX, 2005).

The importance of microfinance in the field of development was reinforced with the launch of the
Microcredit Summit in 1997. The Summit aims to reach 175 million of the world’s poorest families,
especially the women of those families, with credit for the self-employed and other financial and business
4
services, by the end of 2015 (Microcredit Summit, 2005). More recently, the UN, as previously stated, declared
2005 as the International Year of Microcredit.

3. Providers and models of microfinance interventions

MIX defines an MFI as “an organisation that offers financial services to the very poor.” (MIX, 2005).
According to the UNCDF (2004) there are approximately 10,000 MFIs in the world but they only reach four
percent of potential clients, about 30 million people. On the other hand, according to the
st
Microcredit Summit Campaign Report (Microcredit Summit, 2004) as of December 31 2003, the 2,931
microcredit institutions that they have data on, have reported reaching “80,868,343 clients, 54,785,433 of whom
were the poorest when they took their first loan”. Even though they refer to microcredit institutions, they
explain that they include “programs that provide credit for self-employment and other financial and business
services to very poor persons” (Microcredit Summit, 2004).

The differences between these sources highlight a number of points. Firstly, how the two terms,
microcredit and microfinance are often confused and used interchangeably, though in the strictest sense
microcredit should refer only to the provision of credit to the poor. Secondly, the difference between the
statistics shows how difficult it is to get a true picture of how many MFIs are in existence
today and how many clients they are reaching. The IMF5 state that “no systematic and comprehensive
data on MFIs is collected and there are no authoritative figures on key characteristics of the microfinance
industry, such as the number and size of MFIs, their financial situation, or the population served” (2005, p.6).

Despite the lack of data on the sector, it is clear that a wide variety of implementation methods are employed
by different MFIs. The Grameen Bank (2000a) has identified fourteen different microfinance
6
models of which I will focus on three; Rotating Savings and Credit Association (ROSCAs), the
Grameen Bank and the Village Banking models, as these are the three microfinance models that I
encountered during my field research.

◆ Rotating Savings and Credit Associations

These are formed when a group of people come together to make regular cyclical contributions to a common
fund, which is then given as a lump sum to one member of the group in each cycle (Grameen Bank, 2000a).
According to Harper (2002), this model is a very common form of savings and credit. He states that the members
of the group are usually neighbours and friends, and 
the group provides an opportunity for social interaction
and are very popular with women. They are also called merry-go- rounds or Self-Help Groups (Fisher and
Sriram, 2002).

◆ The Grameen Solidarity Group model

This model is based on group peer pressure whereby loans are made to individuals in groups of four to seven
(Berenbach and Guzman, 1994). Group members collectively guarantee loan repayment, and access to
subsequent loans is dependent on successful repayment by all group members. Payments are usually made
weekly (Ledgerwood, 1999). According to Berenbach and Guzman (1994), solidarity groups have proved
effective in deterring defaults as evidenced by loan repayment rates attained by
organisations such as the Grameen Bank, who use this type of microfinance model7. They also

highlight the fact that this model has contributed to broader social benefits because of the mutual trust
arrangement at the heart of the group guarantee system. The group itself often becomes the building block to a
broader social network (1994, p.121).

◆ Village Banking Model

Village banks are community-managed credit and savings associations established by NGOs to provide access to
financial services, build community self-help groups, and help members accumulate savings (Holt, 1994). They
have been in existence since the mid-1980s. They usually have 25 to 50 members who are low-income
individuals seeking to improve their lives through self-employment activities. These members run the bank, elect
their own officers, establish their own by-laws, distribute loans to individuals and collect payments and
services (Grameen Bank, 2000a). The loans are backed by moral collateral; the promise that the group stands
behind each loan (Global Development Research Centre, 2005).

The sponsoring MFI lends loan capital to the village bank, who in turn lend to the members. All
members sign a loan agreement with the village bank to offer a collective guarantee. Members are usually
requested to save twenty percent of the loan amount per cycle (Ledgerwood, 1999). Members’ savings are tied to
loan amounts and are used to finance new loans or collective income generating activities and so they stay
within the village bank. No interest is paid on savings but members receive a share of profits from the village
bank’s re-lending activities.Many village banks target women predominantly, as according to Holt (1994,
p.158) “the model anticipates that female participation in village banks will enhance social status and
intrahousehold bargaining power”.

4. Microfinance and its impact in development

Microfinance has a very important role to play in development according to proponents of microfinance. UNCDF
(2004) states that studies have shown that microfinance plays three key roles in development. It:
◆ helps very poor households meet basic needs and protects against risks,
◆ is associated with improvements in household economic welfare,
◆ helps to empower women by supporting women’s economic participation and so promotes gender equity.

8
Otero (1999, p.10) illustrates the various ways in which “microfinance, at its core combats poverty ”. She
states that microfinance creates access to productive capital for the poor, which together with human capital,
addressed through education and training, and social capital, achieved through local organisation building,

enables people to move out of poverty (1999). By providing material capital to a poor person, their sense of
dignity is strengthened and this can help to empower the person to participate in the economy and society
(Otero, 1999).

The aim of microfinance according to Otero (1999) is not just about providing capital to the poor to combat
poverty on an individual level, it also has a role at an institutional level. It seeks to create institutions that
deliver financial services to the poor, who are continuously ignored by the formal banking sector.
Littlefield and Rosenberg (2004) state that the poor are generally excluded from the financial services sector
of the economy so MFIs have emerged to address this market failure. By addressing this gap in the market in
a financially sustainable manner, an MFI can become part of the formal financial system of a country and so can
access capital markets to fund their lending portfolios, allowing them to dramatically increase the number of poor
people they can reach (Otero, 1999).

More recently, commentators such as Littlefield, Murduch and Hashemi (2003), Simanowitz and Brody (2004)
and the IMF (2005) have commented on the critical role of microfinance in achieving the Millennium
Development Goals9. Simanowitz and Brody (2004, p.1) state, “Microfinance is a key

strategy in reaching the MDGs and in building global financial systems that meet the needs of the most poor
people.” Littlefield, Murduch and Hashemi (2003) state “microfinance is a critical contextual factor with strong
impact on the achievements of the MDGs…microfinance is unique among development interventions: it can
deliver social benefits on an ongoing, permanent basis and on a large scale”. Referring to various case
studies, they show how microfinance has played a role in eradicating poverty, promoting education, improving
health and empowering women (2003).
However, not all commentators are as enthusiastic about the role of microfinance in development and it is
important to realise that microfinance is not a silver bullet when it comes to fighting poverty. Hulme and
Mosley (1996), while acknowledging the role microfinance can have in helping to reduce poverty, concluded
from their research on microfinance that “most contemporary schemes are less effective than they might be”
(1996, p.134). They state that microfinance is not a panacea for poverty-alleviation and that in some cases the
poorest people have been made worse-off by microfinance. Rogaly (1996, p.109/110) finds five major faults with
MFIs. He argues that:
◆ they encourage a single-sector approach to the allocation of resources to fight poverty,
◆ microcredit is irrelevant to the poorest people,
◆ an over-simplistic notion of poverty is used,
◆ there is an over-emphasis on scale,
◆ there is inadequate learning and change taking place.

Wright (2000,p.6) states that much of the scepticism of MFIs stems from the argument that microfinance
projects “fail to reach the poorest, generally have a limited effect on income…drive women into greater
dependence on their husbands and fail to provide additional services desperately needed by the poor”. In
addition, Wright says that many development practitioners not only find microfinance inadequate, but that it
actually diverts funding from “more pressing or important interventions” such as health and education (2000,
p.6). As argued by Navajas et al (2000), there is a danger that microfinance may siphon funds from other
projects that might help the poor more. They state that governments and donors should know whether the
poor gain more from microfinance, than from more health care or food aid for example. Therefore, there is a

need for all involved in microfinance and development to ascertain what exactly has been the impact of
microfinance in combating poverty.
Considerable debate remains about the effectiveness of microfinance as a tool for directly reducing poverty,
and about the characteristics of the people it benefits (Chowdhury, Mosley and Simanowitz, 2004). Sinha
(1998) argues that it is notoriously difficult to measure the impact of microfinance programmes on
poverty. This is so she argues, because money is fungible and therefore it is difficult to isolate credit impact, but
also because the definition of ‘poverty’, how it is measured and who constitute the ‘poor’ “are fiercely contested
issues” (1998, p.3).

Poverty is a complex issue and is difficult to define, as there are various dimensions to poverty. For some,
such as World Bank, poverty relates to income, and poverty measures are based on the percentage of
people living below a fixed amount of money, such as US$1 dollar a day (World Bank, 2003).

5. The impact of microfinance on poverty

There is a certain amount of debate about whether impact assessment of microfinance projects is necessary
10
or not according to Simanowitz (2001b). The argument is that if the market can provide adequate proxies
for impact, showing that clients are happy to pay for a service, assessments are a
waste of resources (ibid.). However, this is too simplistic a rationale as market proxies mask the range of client
responses and benefits to the MFI (ibid.) Therefore, impact assessment of microfinance interventions is
necessary, not just to demonstrate to donors that their interventions are having a positive impact, but to
allow for learning within MFIs so that they can improve their services and the impact of their projects
(Simanowitz, 2001b, p.11).

significant difference between increasing income and reducing poverty (1999). He argues that by increasing
the income of the poor, MFIs are not necessarily reducing poverty. It depends what the poor do with this money,
oftentimes it is gambled away or spent on alcohol (1999), so focusing solely on increasing incomes is not
enough. The focus needs to be on helping the poor to “sustain a specified level of well-being” (Wright, 1999,
p.40) by offering them a variety of financial services tailored to their needs so that their net wealth and income
security can be improved.

It is commonly asserted that MFIs are not reaching the poorest in society. However, despite some
commentators’ scepticism of the impact of microfinance on poverty, studies have shown that microfinance has
been successful in many situations. According to Littlefield, Murduch and Hashemi (2003, p.2) “various
studies…document increases in income and assets, and decreases in vulnerability of microfinance clients”. They
refer to projects in India, Indonesia, Zimbabwe, Bangladesh and Uganda which all show very positive impacts of
microfinance in reducing poverty. For instance, a report on a SHARE project in India showed that three-
quarters of clients saw “significant improvements in their economic well-being and that half of the clients
graduated out of poverty” (2003, p.2).
Dichter (1999, p.26) states that microfinance is a tool for poverty reduction and while arguing that the record of
MFIs in microfinance is “generally well below expectation” he does concede that some positive impacts
do take place. From a study of a number of MFIs he states that findings show that consumption smoothing
effects, signs of redistribution of wealth and influence within the household are the most common impact of MFI
programmes (ibid.).


Hulme and Mosley (1996, p.109) in a comprehensive study on the use of microfinance to combat poverty,
argue that well-designed programmes can improve the incomes of the poor and can move them out of
poverty. They state that “there is clear evidence that the impact of a loan on a borrower’s income is related to
the level of income” as those with higher incomes have a greater range of investment opportunities and so
credit schemes are more likely to benefit the “middle and upper poor” (1996, pp109-112). However, they also
show that when MFIs such as the Grameen Bank and BRAC provided credit to very poor households, those
households were able to raise their incomes and their assets (1996, p.118).

11
Mayoux (2001, p.52) states that while microfinance has much potential the main effects on poverty have
been:
◆ credit making a significant contribution to increasing incomes of the better-off poor, including women,
◆ microfinance services contributing to the smoothing out of peaks and troughs in income and
expenditure thereby enabling the poor to cope with unpredictable shocks and emergencies.

Hulme and Mosley (1996) show that when loans are associated with an increase in assets, when borrowers
are encouraged to invest in low-risk income generating activities and when the very poor are encouraged to save;
the vulnerability of the very poor is reduced and their poverty situation improves. Johnson and Rogaly (1997,
p.12) also refer to examples whereby savings and credit schemes were able to meet the needs of the very poor.
They state that microfinance specialists are beginning to view improvements in economic security, rather than
income promotion, as the first step in poverty reduction (ibid.) as this reduces beneficiaries’ overall vulnerability.

Therefore, while much debate remains about the impact of microfinance projects on poverty, we have seen that
when MFIs understand the needs of the poor and try to meet these needs, projects can have a positive impact on
reducing the vulnerability, not just of the poor, but also of the poorest in society.


 CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
In table no. 3.1 an attempt has been made to classify the respondents on the basis of age.
Majority of the respondents i.e. 50% falls under the age group 20-30 years followed by i.e. 30%
falls under the age group above 40 years and least i.e. 20% of the respondents falls under the age
group 30-40 years.
Table no. 3.1
Classification of the respondents on the basis of age
Sr. No. Age No. of respondents Percentage
1 20-30 25 50
2 30-40 10 20
3 Above 40 15 30
Total 50 100
Source: Data collected through questionnaire.

Classification of the respondents on the basis of age

30%
20-30
50% 30-40
Above 40

20%

Fig.3.1
Interpretation:-
Hence it is concluded that majority of respondents i.e. 50% falls under the age group 20-30
years.


In table no. 3.2 an attempt has been made to classify the respondents on the basis of gender.
Majority of the respondents i.e. 80% falls under the category of male and rest of the respondents
i.e. 20% falls under the category of female.
Table no. 3.2
Classification of the respondents on the basis of gender
Sr. No. Gender No. of respondents Percentage
1 Male 40 80
2 Female 10 20
Total 50 100
Source: Data collected through questionnaire.

Classification of the respondents on the basis of gender

20%

Male
Female

80%

Fig.3.2
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 80% are males.


In table no. 3.3 an attempt has been made to classify the respondents on the basis of occupation.
Majority of the respondents i.e. 50% are self employed followed by the respondents i.e. 40% are
farmers and least i.e. 10% of the respondents falls under the category of govt. employee.
Table no. 3.3
Classification of respondents on the basis of occupation
Sr. No. Occupation No. of respondents Percentage
1 Farmer 20 40
2 Self employed 25 50
3 Govt. employee 5 10
Total 50 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of occupation

10%

40% Farmer
Self employed
Govt. employee
50%

Fig.3.3
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 50% falls under the category of self
employed.


In table no. 3.4 an attempt has been made to classify the respondents on the basis of awareness
towards micro financing schemes. Majority of the respondents i.e. 80% are aware about the
micro financing schemes and rest of the respondents i.e. 20% are not aware about micro
financing schemes.
Table no. 3.4
Classification of respondents on the basis of awareness towards micro financing schemes.
Sr. No. Response No. of respondents Percentage
1 Yes 40 80
2 No 10 20
Total 50 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of awareness

towards microfinancing schemes

20%

YES
No

80%

Fig.3.4
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 80% are aware about micro financing
schemes.


In table no. 3.5 an attempt has been made to classify the respondents on the basis of awareness
towards financial institution / bank. Majority of the respondents i.e. 60% are aware about the
financial institution / bank which provides micro financing loans and rest of the respondents i.e.
40%are not aware about micro financing institution / bank.
Table no. 3.5
Classification of respondents on the basis of awareness towards financial institution / bank.
Sr. No. Response No. of respondents Percentage
1 Yes 30 60
2 No 20 40
Total 50 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of awareness

towards financial institution / bank

40%
Yes
No
60%

Fig.3.5
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 60% are aware about the financial
institution / bank which provides micro financing loans.


In table no. 3.6 an attempt has been made to classify the respondents on the basis of awareness
towards getting micro financing loan. Majority of the respondents i.e. 60% are aware about the
procedure of getting the micro financing loan and rest of the respondents i.e. 40%are not aware
about the procedure of getting the micro financing loan.
Table no. 3.6
Classification of respondents on the basis of awareness towards procedure of getting micro
financing loan.
Sr. No. Response No. of respondents Percentage
1 Yes 30 60
2 No 20 40
Total 50 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of awareness

towards procedure of getting micro financing loan

40%
Yes
No
60%

Fig.3.6
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 60% are aware about the procedure of
getting the micro financing loan.


In table no. 3.7 an attempt has been made to classify the respondents on the basis of purpose of
micro financing loans. Majority of the respondents i.e. 50% are fully aware about micro
financing purposes as Household emergency followed by i.e. 30% ofthe respondents are partially
aware and least i.e. 20% of the respondents are not aware about micro financing purposes as
Household emergency.
Majority of the respondents i.e. 50% are partially aware about micro financing purpose as
starting small scale industry followed by i.e. 40% of the respondents are fully aware and least i.e.
10% of the respondents are not aware about micro financing purpose as starting small scale
industry.
Majority of the respondents i.e. 60% are fully aware about micro financing purpose as school fee
followed by i.e. 30% of the respondents are partially aware and least i.e. 10% of the respondents
are not aware about micro financing purpose as school fee.
Table no.3.7
Classification of respondents on the basis of purpose of micro financing loans.
Sr. No. Purpose of Microfinance Fully aware Partially aware Not aware Total

1 Household emergency 25(50%) 15(30%) 10(20%) 50(100%)

2 Starting Small Scale 20(40%) 25(50%) 5(10%) 50(100%)

Industry

3 School fee 30(60%) 15(30%) 5(10%) 50(100%)

Source: Data collected through questionnaire.


 70%
60%
60%
50% 50%
50%
40%
40% Household emergency
30% 30%
30% Starting Small Scale Industry
20%
20% School fee
10% 10%
10%
0%
Fully aware Partially aware Not aware

Fig.3.7
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 50% are fully aware about the micro
financing purpose as household emergency.
Majority of the respondents i.e. 50% are partially aware about micro financing purpose as
starting small scale industry.
Majority of the respondents i.e. 60% are fully aware about micro financing purpose as school
fee.

In table no. 3.8 an attempt has been made to classify the respondents on the basis of their
response regarding microfinance institutions. Majority of the respondents i.e. 50% are fully
aware about Annapurna Microfinance Pvt. Ltd. followed by i.e. 30% of the respondents are
partially aware and least i.e. 20% of the respondents are not aware about Annapurna
Microfinance Pvt. Ltd.
Majority of the respondents i.e. 50% are not aware about Disha Microfinance Pvt. Ltd. followed
by i.e. 30% of the respondents are fully aware and least i.e. 20% of the respondents are partially
aware about Disha Microfinance Pvt. Ltd.
Majority of the respondents i.e. 50% are fully aware about Grameen-Financial Services followed
by i.e. 30% of the respondents are partially aware and least i.e. 20% of the respondents are not
aware about Grameen-Financial Services.


 Table no.3.8
Classification of respondents on the basis of their response regarding microfinance
institutions.
Sr. Microfinance Institutions Fully Partially Not Total
No. aware aware aware
1 Annapurna Microfinance Pvt. Ltd. 25 (50%) 15 (30%) 10 (20%) 50
2 Disha Microfinance Pvt. Ltd. 15 (30%) 10 (20%) 25 (50%) 50

3 Grameen-Financial Services 25 (50%) 15 (30%) 10 (20%) 50

4 Janalakshami Financial Services 5 (10%) 20 (40%) 25 (50%) 50

Pvt. Ltd.
5 Rashtriya Seva Samiti 10 (20%) 15 (30%) 25 (50%) 50

(Note: figures in the parenthesis represents percentage)

Source: Data collected through questionnaire.
60%
50% 50% 50% 50%50% Annapurna Microfinance Pvt. Ltd.
50%
40%
40% Disha Microfinance Pvt. Ltd.
30% 30% 30% 30%
30%
Grameen-Financial Services
20% 20% 20% 20%
20%
10% Janalakshami Financial Services
10% Pvt. Ltd.
Rashtriya Seva Samithi
0%
Fully aware Partially aware Not aware

Fig.3.8
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 50% are fully aware about Annapurna
Microfinance Pvt. Ltd.
Majority of the respondents i.e. 50% are not aware about Disha Microfinance Pvt. Ltd.
Majority of the respondents i.e. 50% are fully aware about Grameen-Financial Services.


In table no. 3.9 an attempt has been made to classify the respondents on the basis of benefit
availed under micro financing scheme. Majority of the respondents i.e. 60% have not availed the
benefit of micro financing scheme and rest of the respondents i.e. 40% haveavailed the benefit.
Table no. 3.9
Classification of respondents on the basis of benefit availed under micro financing scheme.
Sr. No. Response No. of respondents Percentage
1 Yes 20 40
2 No 30 60
50 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of benefit availed

under micro financing scheme

40%
Yes
No
60%

Fig.3.9
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 60% have not availed the benefit of
micro financing schemes.

In table no. 3.10 an attempt has been made to classify the respondents on the basis of type of
benefit availed under micro financing scheme. Majority of the respondents i.e. 50% are those
who get the benefit for the purpose of paying the school fee of their child’s followed by i.e. 20%
of the respondents are those who get the benefit for the purpose of meeting the household


emergency least i.e. 10 percent are those who get the benefit for the purpose of agriculture or
purchasing vehicle.
Table.3.10
Classification of respondents on the basis of availing thetype of benefits under different
schemes of micro financing
Sr. No. Response No. of respondents Percentage
1 Poultry farm 2 10
2 Household emergency 4 20
3 School fee 10 50
4 Agriculture machinery or 2 10
vehicles
5 Micro insurance 2 10
Total 20 100
Source: Data collected through questionnaire.

Classification of respondents who avail the benefit

10% 10%

10% Poultry farm

20% Household emergency

School fee
Agriculture machinery or vehicles
Micro insurance
50%

Fig.3.10
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 50%get the benefit for the purpose of
paying the school fee of their children.
In table no. 3.11 an attempt has been made to classify the respondents on the basis of change in
income / living standard after availing the benefit of micro financing scheme. Half of the


respondents i.e. 50% increase their income / living standard after availing the benefit of micro
financing scheme and 50% of respondents doesn’t increase their income / living standard after
availing the benefit of micro financing scheme.
Table no. 3.11
Classification of respondents on the basis of change in income / living standard after
availing the benefit of micro financing scheme.
Sr. No. Response No. of respondents Percentage
1 Yes 10 50
2 No 10 50
Total 20 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of change in

income / living standard

Yes
50% 50%
No

Fig.3.11
Interpretation:-
Hence it is concluded that half of the respondents i.e. 50% increase their income / living standard
after availing the benefit of micro financing scheme.


In table no. 3.12 an attempt has been made to classify the respondents on the basis of benefit they
availed under micro financing scheme. Majority of the respondents i.e. 40% get the benefit of
less interest rate followed by i.e. 30% get the benefit of more payment period, 20% respondents
get the benefit of easily availability of loans and least i.e. 10 percent respondents are those who
get all the benefits (less interest rate, more payment period and easily availability).
Table.3.12
Classification of respondents on the basis benefits particularly they availed.
Sr. No. Response No. of respondents Percentage
1 Less interest rate 8 40
2 More payment period 6 30
3 Easily available 4 20
4 All above 2 10
Total 20 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of benefits

10%
Less interest rate

40% More payment period

20%
Easily available
All above

30%

Fig.3.12
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 40% get the benefit of less interest
rate.


In table no. 3.13 an attempt has been made to classify the respondents on the basis of subsidy or
credit they received from government. Majority of the respondents i.e. 65% doesn’t get any
subsidy or credit from the side of government under micro financing scheme and rest of the
respondents i.e. 35% are getting the subsidy from govt.
Table no. 3.13
Classification of respondents on the basis of subsidy or credit they received from
government.
Sr. No. Response No. of respondents Percentage
1 Yes 7 35
2 No 13 65
Total 20 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of subsidy or

credit they received from government

35%
Yes
No
65%

Fig.3.13
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 65% doesn’t get any subsidy or credit
from the side of government under micro financing scheme.


In table no. 3.14 an attempt has been made to classify the respondents on the basis increasing the
standard of living through micro financing. Majority of the respondents i.e. 80% says that micro
financing is really helpful in increasing the standard of living and rest of the respondents i.e. 20%
says that micro finance isn’t helpful in increasing the standard of living.
Table no. 3.14
Classification of respondents on the basis of increasing the standard of living through
micro financing.
Sr. No. Response No. of respondents Percentage
1 Yes 40 80
2 No 10 20
Total 50 100
Source: Data collected through questionnaire.

Classification of respondents on the basis increasing the

standard of living through micro financing

20%

Yes
No

80%

Fig.3.14
Interpretation:-
Hence it is concluded that Majority of the respondents i.e. 80% says that micro financing is
really helpful in increasing the standard of living.


In table no. 3.15 an attempt has been made to classify the respondents on the basis of their
response towards micro finance as a tool to fight against poverty. Majority of the respondents i.e.
60% says that micro financing is really a tool to fight against poverty and rest of the respondents
i.e. 40% says that microfinance isn’t a tool to fight against poverty.
Table no. 3.15
Classification of respondents on the basis of their response towards micro finance as a tool
to fight against poverty.
Sr. No. Response No. of respondents Percentage
1 Yes 30 60
2 No 20 40
Total 50 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of their response

towards micro finance as a tool to fight against poverty

40%
Yes
No
60%

Fig.3.15
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 60% says that micro financing is really
a tool to fight against poverty.


In table no. 3.16 an attempt has been made to classify the respondents on the basis of micro
finance schemes implementation. Majority of the respondents i.e. 66% says that micro financing
schemes of govt. of India are implemented properly and rest of the respondents i.e. 34% says that
implementation of micro financing schemes is not proper.
Table no. 3.16
Classification of respondents on the basis of their response towardsimplementation of
micro financing scheme.
Sr. No. Response No. of respondents Percentage
1 Yes 33 66
2 No 17 34
Total 50 100
Source: Data collected through questionnaire.

Classification of respondents on the basis of their response

towards implementation of schemes

34%
Yes
No
66%

Fig.3.16
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 66% says that micro financing
schemes of govt. of India are implemented properly.


In table no. 3.17 an attempt has been made to classify the respondents on the basis of hurdles in
implementations in micro financing scheme. Majority of the respondents i.e. 30% says that lack
of knowledge of people is main hurdle in implementation of microfinance scheme.
20% of the respondents says Legal formalities to provide finance to poor is hurdle in
implementation of microfinance scheme.
15% of the respondents says that ability of poor people to save hurdle in implementation of
microfinance scheme.
Table no. 3.17
Classification of respondents on the basis of their response towards hurdles in
implementations in micro financing scheme.
Sr. No. Response No. of respondents Percentage
1 Lack of knowledge of 6 30
people
2 Illiterate or less educated 3 15

3 Legal formalities to 4 20
provide finance to poor
4 More articulate people 2 10
may cheat poor
5 Ability of poor people to 3 15
save
6 Inflation rates 1 5

7 All above 1 5

Total 20 100

Source: Data collected through questionnaire.


 Classification of respondents on the basis of their response
towards hurdles in implementations in micro financing
scheme

0% 0% Lack of knowledge of people

5%
5%
Illiterate or less educated
30%
15%

10% Legal formalities to provide

finance to poor
15% More articulate people may
20% cheat poor

0% Ability of poor people to save

Fig.3.17
Interpretation:-
Hence it is concluded that majority of the respondents i.e. 30% says that lack of knowledge of
people is main hurdle in implementation of microfinance scheme.


5.1 SUMMARY

Microfinance is defined as any activity that includes the provision of financial services such as
credit, saving 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 saving for risk mitigation and consumption something.

“Microfinance is an economic development approach that involves providing financial services

through institutions to low income clients”.

Poor people borrow from informal moneylenders and save with informal collectors. They receive
loans and grants from charities. They buy insurance from state-owned companies. They receive
funds transfers through formal or informal remittance networks. It is not easy to distinguish
microfinance from similar activities. It could be claimed that a government that orders state
banks to open deposit accounts for poor consumers, or a moneylender that engages in usury, or a
charity that runs a heifer pool are engaged in microfinance. Ensuring financial services to poor
people is best done by expanding the number of financial institutions available to them, as well
as by strengthening the capacity of those institutions.


5.2 FINDINGS

 Majority of respondents fall under the age group 20-30 years.

 Majority of respondents are male.

 Majority of respondents are self-employed.

 Majority of respondents are aware about micro financing schemes.

 Majority of respondents are aware about financial institutions or banks which provide
micro financing loans.

 Majority of respondents know the procedure of getting micro financing loans.

 Majority of respondents are fully aware about purpose of micro financing as household
emergency.

 Majority of respondents are partially aware about purpose of micro financing as starting
small scale industry.

 Majority of respondents are fully aware about purpose of micro financing as school fee.

 Majority of respondents are fully aware about Annapurna Microfinance Pvt. Ltd.

 Majority of respondents are not aware about Disha Microfinance Pvt. Ltd.

 Majority of respondents are fully aware about Grameen Financial Services.

 Majority of respondents are not aware about Janalakshami Financial Services Pvt. Ltd.


 Majority of respondents are not aware about RashtriyaSevaSamithi.

 Majority of respondents doesn’t availed benefit micro financing scheme.

 Majority of respondents availed the benefit for paying the school fee of their children.

 Half of the respondentsi.e.20 increased their living standard.

 Majority of respondents availed the benefit of less interest rate on their loans.

 Majority of respondents doesn’t receive any subsidy from the side of government.

 Majority of respondents increased their living standard through micro financing.

 Majority of respondents says that micro financing is really a tool to fight against poverty.

 Majority of respondents says that micro financing scheme of govt. is implemented

properly to eradicate poverty.

 Majority of respondents says that lack of knowledge of people is main hurdle in

implementation of micro financing scheme.


5.3 SUGGESTIONS

 Micro financing institutions should expand its coverage up to a every age group.

 Micro financing institutions should design some schemes exclusively for women so it can
increase the women customer base.

 Awareness level regarding micro financing schemes should increase.

 Micro financing institutions should increase the particular benefits comes under micro
financing schemes.

 Number of micro financing institutions should be increased in the market.

 Micro financing schemes is working as a tool to increase the standard of living and
income base of people so it should be implemented at large scale.

 Government should properly execute the subsidy and credit policies so that every
customer can avail the benefit of these things.

 Micro financing institutions should improve the implementation of schemes in the wide
spread geographical area.


  The implementation of micro financing schemes can be improved by increasing the
knowledge of people regarding these schemes so somewhere there is a need to improve
the awareness level and education level of public.

BIBLIOGRAPHY

Books
 Kothari, C. R.”Research Methodology” Wishwa Prakashan
 R, Nargundkar. “ Marketing Reasearch “TMH, new Delhi,2nd Edition
 Journals of business economics & management

Web sites
 www.microfinacing.com
 www.microfinancinginstitutes.com
 www.microfinancinghistory.com
 www.microfinancingwikipedia.com


 ANNEXURE
QUESTIONNAIRE:

Personal Details

Name of customers-------------

City -----------------------------------

Age

Sex

Occupation

1. Are you aware about micro financing scheme?

Yes No

2. Do you know which financial institution/bank provide Micro financing loans?

Yes No

3. Do you know the procedure of the getting Micro financing loan ?

Yes No

4. Have you ever availed any benefit under microfinance scheme?

Yes No


5. Is there any change in your income / living standard after availing the benefit of microfinance?
Yes No

6. Did you get any subsidy, credit benefit from the government in Micro financing?
Yes No

7. Do you think that Micro financing is really helpful in increasing the standard of living?
Yes No

8. Do you think that Micro financing really a tool to fight against poverty?
Yes No

9. Do you think that the microfinance schemes of govt. of India are implemented properly to
eradicate poverty?
Yes No

55