Promotional role of development banks in India The pace of development cannot be accelerated by providing financial assistance alone.

There are factors which inhibit industrialization of an underdeveloped country. It is essential to make a correct diagnosis of those factors and plan things accordingly. The growth potential of different areas, the availability of natural resources, demand conditions, infrastructure facilities, etc. should be taken into account before deciding the pattern of industrialization of various places. The task of identification of growth potentialities and preparation of feasibility studies is not an easy task. It requires huge finances and technical expertise which is beyond the competence of entrepreneurs of under-developed countries. It is in this area where development banks can play crucial role. In addition to providing the traditional role of providing financial assistance, development banks in India are undertaking promotional role also. Some of the areas where these banks are participating are: (1) Surveys of Backward Areas Under the Industrial Development Bank of India, development institutions conducted industrial potential surveys in June, 1970 with a view to identify specific project ideas for implementation in those areas. These surveys studied the availability of resources, demand potential and availability of infrastructures facilities. In 1982, Government of India identified 83 districts in the country where no medium or large scale industrial units existed. IOBI jointly with IFCI and ICICI launched a programme for identifying industrial opportunities and needs for. These project ideas were further screened and developed for arriving at some firm decision about their implementation. IDBI conducted feasibility studies and cleared projects for implementation. (2) Inter-Institutional Groups (IIGs) With a view to provide a forum to the national and state financial institutions, IDBI constituted 23 IIGs in various states and union territories These groups aimed to help accelerate the process of industrial development in a state with particular emphasis on less developed areas, An attempt was also made to evolve suitable strategies for industrial development within the framework of national and state policies and local requirements. IDBI has been constantly reviewing the functioning of these groups so as to evolve suitable measures for malting them effective. (3) Establishing Technical Consultancy Organizations (TCOs) There is a need for technical consultancy at the time of selling up a new unit and at the time of making change like modernization, expansion, diversification, etc. The small and medium scale units cannot pay high fees of consultancy agencies. With a view to help these entrepreneurs, financial institutions set up 17 consultancy organization for providing consultancy at nominal rates. These organizations provide consultancy services to small and medium entrepreneurs, commercial banks, state-level financial institutions and other agencies engaged in industrial promotion and development. The consultancy services covered so far include market surveys, preparation of feasibility and project reports, entrepreneur ship development programmes, diagnostic studies and rehabilitation schemes for sick units, services for implementing projects on turn-key basis. TCOs have been giving thrust to modernization small and medium scale sectors also. In this respect they have undertaken in depth studies of specific sub- sectors of small scale industry so as to identify their modernization needs and prepare modernization programmes. (4) Entrepreneurial Development Programmes (EPPs) Industrial development of a country is directly influenced by the quality of entrepreneurs it has produced, with a view to impart requisite training to entrepreneurs. IDBI has been encouraging entrepreneurial development programmes. It has mainly used the agency of TCOs for drawing up and conducting these programmes to cater to the needs of entrepreneurs from small and medium scale sectors. IDBI meets up to 50 per cent of the cost

of such programmes and the balance cost is met by state governments or other sponsoring institutions. Development banks have also been trying to strengthen the infrastructure for conducting entrepreneurial development programmes. The main thrust has been to institutionalize entrepreneurship activities, generating, sharpening and sharing knowledge through research documentation and publication, developing a cadre of professionals. A major step in this area was the setting up of Entrepreneurship Development Institute of India, Ahmedabad in 1983. The objective of this institution was to train EPP trainers, providing resource inputs running model development programmes, conducting. (5) Technological Improvements Development banks, especially IDBI have been helping small and medium sectors in developing and upgrading of their technology so that they arc able to match the pace of development. These banks also encourage entrepreneurs to adopt sophisticated technology with the help of academic and research institutes and also to encourage entrepreneurship among science and technology graduates. Development banks have done a good job in promoting industrial activities in various parts of the country. The development of backward areas is a gigantic task in India. Private entrepreneurs cannot measure to this task of their own. So development banks are expected to play an important role in this regard. These banks should help in setting up new projects by associating private entrepreneurs so that their management is left to them. After a particular stage of a project the development institutions should transfer the responsibility to private sector and same resource should be used to develop more units. Development banks, in co-operation with private sector, can certainly help in accelerating the pace of industrial development. What is Microfinance? As the name suggests, microfinance is the provision of financial services (loans, savings, insurance) to people on a small scale, such as businesses with low or moderate incomes, but you can read more meticulous definitions here and here. Loans of micro value are one of the better known means of helping small business owners in developing countries move out of poverty.The definition for according to The Asian Development Bank (ADB) is any financial service targeted toward the poor, such as: o deposits o finance schemes or loans up to $3,000 o payment services o money transfers o insurance to poor and low-income households and their micro-enterprises Microfinance Institutions (MFIs) provide loans and savings services through a variety of lending models, while micro entrepreneurs use these services. The theory is that if the poor have access to these services, their financial lives will be more stable, predictable and secure, allowing them to plan and improve their livelihoods through education, healthcare and empowerment. In other words, microfinance converts poverty into an economic opportunity that evades the idea of exploitation. What are the Sources of Microfinance? Microfinance providers come in various forms which can be broadly grouped as follows:
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Formal Microfinance Institutions rural/microfinance/village banks, commercial banks, telecom firms, and cooperatives offering loans to lower-income group individuals (see examples)

Semi-formal Microfinance Institutions nongovernmental organizations providing microsized loans (see examples) o Informal Microfinance Sources money lenders and shopkeepers who often loan money on a daily basis and charge exorbitant interest rates. This list was taken from ADBs website. Problems Faced by Microfinance
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Despite good intentions, microfinance still has several hurdles to face:

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perceived high risk of lending to the poor (the loan may be misused easily) technology-related hurdles, such as the high costs involved in small loan transactions for microfinance providers (Read about technology-related solutions) o lack of awareness about sources of funds for microfinance providers to pass on to the poor o the poors inability to offer marketable collateral for loans to MFIs o difficulty in measuring the social performance of MFIs (Read about tools to help measure the social impact of microfinance) o mixing of charity with business by microfinance providers (this is an issue of poor governance) o high interest rates of loans made to the poor (to cover various costs and risks) o lack of customized solutions/ microfinance models for the poor o inappropriate targeting of poor households by microfinance programs o lack of microfinance training for MFIs o poor distribution system of MFIs, i.e. a need to spread out loan facilities into rural areas o lack of information about microfinance investment opportunities (Possible solution through AppLab) o poor institutional viability of microfinance ventures o dual mission of MFIs to be financially sustainable as well as development oriented These problems can be grouped according to whether theyre caused by MFIs or caused by micro entrepreneurs. You can read about them in greater detail at these links. Just like any other new venture, microfinance too faces obstacles that will eventually be ironed out as governments alter their priorities, and as the commercial sector understands the economic viability of the development sector, considering the relative immunity of the microfinance sector to the global financial meltdown. Already, a few encouragingtrends have emerged in the microfinance sector. As Kofi Annan once put it, microfinance not only recognizes the needs of the poor, it also empowers them and taps into their remarkable reservoir of energy and knowledge. In short, microfinance has tremendous potential, its time is now and is here to stay. You can read other articles about microfinance theory Please remember to leave a comment. I would love to hear your views. and practice here.