Professional Documents
Culture Documents
Neelam Chauhan, Assistant Professor BLSIM E-mail Id-neelamchauhan193@gmail.com Mb- +91 9911191196
Abstract
"The key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder of development. The ladder of development hovers overhead, and the poorest of the poor are stuck beneath it. They lack the minimum amount of capital necessary to get a foothold, and therefore need a boost up to the first rung. " Jeffrey D. Sachs As we all know that India is a developing country and second largest populated country in the world. Poverty in India is widespread, with the nation estimated to have a third of the world's poor. The number of poor people in India, according to the countrys Eleventh National Development Plan, amounts to more than 300 million. The country has been successful in reducing the proportion of poor people from about 55 per cent in 1973 to about 27 per cent in 2004. But almost one third of the countrys population of more than 1.1 billion continues to live below the poverty line, and a large proportion of poor people live in rural areas. Poverty remains a chronic condition for almost 30 per cent of Indias rural population. Due to this there is low productivity in both sectors i.e. agriculture (contribute 20-25% in GDP) and manufacturing. People from rural areas have very low access to institutionalized credit (from commercial bank).
Keywords:
Research Methodology
This research paper is based on purely descriptive research which is related to the secondary data. Secondary data are those data which is taken from the secondary sources like newspapers, magazines, articles, journals, websites, etc.
Introduction
Microfinance sector has grown rapidly over the past few decades. Nobel Laureate Muhammad Yunus is credited with laying the foundation of the modern MFIs with establishment of Grameen Bank, Bangladesh in 1976. Today it has evolved into a vibrant industry exhibiting a variety of business models. Microfinance Institutions (MFIs) in India exist as NGOs (registered as societies or trusts), Section 25 companies and Non-Banking Financial Companies (NBFCs). Commercial Banks, Regional Rural Banks (RRBs), cooperative societies and other large lenders have played an important role in providing refinance facility to MFIs. Banks have also leveraged the SelfHelp Group (SHGs) channel to provide direct credit to group borrowers. Microfinance is often defined as financial services for poor and low-income clients offered by different types of service providers. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as microfinance institutions (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly.
More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality and affordable financial services offered by a range of retail providers to finance income-producing activities, build assets, stabilize consumption, and protect against risks. These services include savings, credit, insurance, remittances, and payments , and others. Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services. Microfinance is not just about giving micro credit to the poor rather it is an economic development tool whose objective is to assist poor to work their way out of poverty. It covers a wide range of services like credit, savings, insurance, remittance and also non-financial services like training, counseling etc. Salient features of Micro finance: Borrowers are from the low income group Loans are of small amount micro loans Short duration loans Loans are offered without collaterals High frequency of repayment Loans are generally taken for income generation purpose.
Indian Trusts Act, 1882: Some MFIs are registered under the Indian Trust Act, 1882 either as public charitable trusts or as private, determinable trusts with specified beneficiaries/members. Not-For-Profit Companies Registered Under Section 25 Of Companies Act, 1956: An organization given a license under Section 25 of the Companies Act 1956 is allowed to be some of the provisions of the Companies Act, 1956. For companies that are already registered under the Companies Act, 1956, if the central government is satisfied that the objects of that company are restricted to the promotion of commerce, science, art, religion, charity or any other useful purpose; and the constitution of such company provides for the application of funds or other income in promoting these objects and prohibits payment of any dividend to its members, then it may allow such a company to register under Section 25 of the Companies Act.
Hard data on the poverty status of clients is limited, but tends to suggest that most microfinance clients fall near the poverty line, both above and below. Households in the poorest 10% of the population, including the destitute, are not traditional microcredit clients because they lack stable cash flows to repay loans. Most clients below the poverty line are in the upper half of the poor. It is clear, however, that some MFIs can serve clients at the higher end of the bottom half. Women often comprise the majority of clients.
Impact of microfinance
Common areas of impact considered by microfinance organizations operating in developing countries include: Increase of personal income Empowerment of women Improvement in nutrition Increased education of the borrowers children Access to clean water Increased access to medicine Creation of jobs Business growth Increased income to the business owner Improved credit rating Graduating from social support programs
workers based on automated credit scoring is usually not included in the definition of microcredit, although this may change. Microfinance typically refers to a range of financial services including credit, savings, insurance, money transfers, and other financial products provided by different service providers, targeted at poor and low-income people.
Microfinance industry ensuring that the poor do not fall prey to predatory lenders
Many countries are concerned about the impact of excessive interest rates, abusive lending practices, and over-indebtedness on poor borrowers. Quite a few players in the industry are now focusing on consumer protection issues. Typical consumer protection measures include
disclosure requirements, rules and prohibitions related to lending practices, mechanisms for handling complaints or disputes, and consumer education. Even in countries where consumer abuse is not yet a problem, promoting voluntary consumer protection codes and practices may reduce future pressure to over-regulate. An increasing number of individual MFIs are adopting voluntary pledges or codes that promote effective consumer protection and a consumer-oriented culture. For instance, the Bosnian MFI Prizma has worked with Freedom from Hunger to articulate Our Commitment to Clients.
Findings
Micro-Finance plays an important role for the development of the poorer section of the society. Majority of poor are excluded from financial services. Considerable gap between demand and supply for all financial services. MFIs provide non-financial products, such as business development or health services. Transaction cost are high Sometimes it is felt by the bankers that it is very difficult for the poor people due to their creditworthiness..
Conclusion MFIs are at a stage where they have to prove to themselves that they create value to their clients through appropriate financial services and are responsible financiers. The potential for growing micro finance institutions in India is very high. While MFIs have been able to adopt a code of conduct and client protection principles, they are yet to integrate social performance management principles fully. MFIs most important assets are not their loan portfolios, but their relationships with their clients. Unless the customers are chosen with care, wellserved and the relationship sustained over a long time, the MFI, whether commercial or developmental, cannot hope to survive. Growth over a long period of time and sustainability of institutions will critically depend not just on the numbers of clients and volume of business, but the quality of service and relevance of the services to the customer community. Lenders to MFIs, investors, governments and regulators need to work in coordination to achieve the desired goal of responsible finance. MFIs are just the delivery edge of microfinance. Investors, funders, regulators and opinion makers are those who have a responsibility to ensure that the edge remains sharp and functional. To ensure that MFIs remain relevant to their local context and are seen as important institutions. .
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