The topic that I have chosen for this semesters dissertation report is: MICROFINANCE A TOOL TO COMBAT RECESSION

N SYNOPSIS OF THE REPORT:

Microfinance business refers to the provision of banking services by poverty-focused financial institutions to poor people that are not being served by mainstream financial services providers. MFIs allow investors to reach double-bottom line objective by simultaneously focusing on poverty alleviation and attractive risk-return trade-off. The microfinance industry trace its roots from the mid-1970s, when the first Microfinance Institution (MFIs) where established in South Asia and Latin America. The early steps of MFIs are based on experimental programs of group lending to low-income entrepreneurs in the developing countries. In fact, the successful model of Grameen Bank in Bangladesh was accepted and adopted by other MFIs around the globe. The industry has since expanded throughout the developing world and has become one of the most significant areas targeted by the social responsible investments (SRIs) sector. Microfinance has gained outstanding attention during the last couple of years. Microfinance clients are typically self-employed entrepreneurs, often women, who usually run household-based micro-enterprises. In rural areas the clients are usually farmers, shepherds and merchants, involved in small scale food production, processing and trading. In urban areas, the range of clients profile is much more diverse, from shopkeepers and artisans to various service providers. The idea of microfinance is to fill in the gap left by the conventional banks by providing microloans to the poorest layers of population that do not qualify for traditional banking loans From the very starting of present recession, economist and thinkers acclaimed microfinance to be most appropriate tool to combat recession. Recession has made its impact to every sphere of different economy and is considered to be most dreadful after world wars. Recession is the result of reduction in the demand of the products in global market. Recession can also be associated with falling prices known as deflation due to lack of demand of products.

Again, it could be result of inflation or a combination of increasing prices and stagnant economic growth in the west. The financial meltdown has turned into a sudden drop of capital flows to emerging and developing economies, which threatens to destabilize their financial system, impede further growth and increase poverty. The developing countries are most affected by these trends which are those that have been integrated into the international financial system. They have been facing toxic asset problems, reduced accessibility to external liquidity, widespread withdrawals of local deposits and deepening of balance of payments deficit. Microfinance is considered to be the countercyclical industry within the financial sector, i.e. the tool that can provide stability buffer against the crushing impact of the economic downturn. With many emerging industries in Eastern Europe suffering from the economic slowdown, it is important to understand the impact and effects of the crises on the microfinance sector.

OBJECTIVES OF THE REPORT:

To study the impact of microfinance on different economies under recession. Try to answer this timidity of recession in present scenario though microfinance To examine the main areas of contagion of the crisis to the microfinance sector worldwide.

RESEARCH METHODOLOGY:
The type of research selected is based on problem identification. Here the research type used is descriptive research. Descriptive research includes facts-findings and enquiry of different kinds. The main purpose of the research is description about the study of current recession problem, as it exists in present system. In this report, an attempt has been made to discover how microfinance plays a vital role in combating against the problem of recession of different economies.

ACTUAL COLLECTION OF DATA:

Data collection from secondary source:
Secondary data was collected from various sources. While preparation of this report, the secondary data have been collected through: Data was generated from general library research sources, textbooks, trade journals, articles from newspaper treasury management, brochures and lastly through Internet. A data of five economies has been taken for the study. The names of these are: AMERICA, JAPAN, AUSTRALIA, AFRICA and INDIA.

TABLE OF CONTENTS: S. NO. CONTENTS EXECUTIVE SUMMARY 1. CHAPTER-1 INTRODUCTION OBJECTIVE OF STUDY RESEARCH METHODOLOGY 2. CHAPTER-2 INTRODUCTION OF MICROFINANCE HISTORY OF MICROFINANCE 3. CHAPTER-3 UNDERSTANDING OF MICROFINANCE MICROFINANCE IN INDIA RECESSION DEFINITION OF RECESSION CAUSES OF ECONOMIC RECESSION EFFECTS OF ECONOMIC RECESSION IMPACT OF RECESSION CURRENT RECESSION RECESSION IN INDIA MICROFINANCE: COMBATING RECESSION 4. CHAPTER-4 RESULTS AND DISCUSSION CONCLUSION BIOLIOGRAPHY

INTRODUCTION:
The global recession which started in 2008 after the subprime crises and the unprecedented default or reduces of many financial institutions has strongly affected the credibility of the international banking system, damaging also the real economy. Due to this joint crisis, the credit crunch is severely affecting the economy in Western globalized countries. Developing countries, not fully integrated with international markets, seem less affected and local microfinance institutions might also allow for further shelter recession, even if foreign support to donor driven NGOs or not fully independent microfinance banks is slowing down and collection of international capital is harder and more expensive. Intrinsic characteristics of microfinance, such as closeness to the borrowers, limited risk and exposure and little if any correlation with international markets have an anti-cyclical effect. In hard and confused times, it pays to be little, flexible and simple. In the backdrop of heavyweight multinational banks going bust, successof micro credit institutions sound interesting. Such is the gaining popularity of microfinance industry that many commercial and multinational banks are increasingly starting their operations in this sector. ABN AMRO, STANDARD CHARTERED BANNNK, HSBC, ICICIHDFC, UTI etc., have also developed their own strategies and models for leading this sector. Because of isolation of rural India from global financial meltdown, microfinance is considered to be recession proof and in fact is booming like never before in these turbulent times. Before moving ahead let us gain insight on micro financing. The concept of micro credit was vision by the now Noble laureate Dr. Mohammad Yunus of Bangladesh. He established Gramin Bank in 1976. Gramin Bank concentrated on disturbing loans to poor and needy people of rural areas. Its lending system was peculiar but effective. To obtain loans, potential borrowers had to form a group of five. Many groups in the village were federated in a centre. Bank gave credit to centre, which in turn forwarded it to one or two members of each group. This loan was given to members without any collateral security. In spite of any collateral security, the loan recovery rate was as high as 98%. This was because of one of the most pioneering principle of the system mutual accountability. Failure of repayment on part any borrower may lead to ineligibility to receive any further credit to the whole group. Hence the borrower is kept under constant pressure

from his group members to repay the loan. This led to timely repayment of the loans. This system has worked wonders and Gramin Bank has now over 1000 branches in every provision of Bangladesh, borrowing groups in 28,000 villages, 12 lakh borrowers with over 90% being women. In India, the micro credit is characterized by self help groups (SHG) and NGOs. SHG is an association of individuals, generally poor women forming a group. These groups are promoted by NGOs who act as centers as in the case of Gramin Banks. NABARD is the biggest institute in India which advances grants and loans to these SHGs. ICICI Bank through its partnership model has already achieved an outstanding of Rs. 720 cr. Other private sector banks like HDFC (175 cr.), UTI (100 cr.) etc., are also looking at microfinance as a serious business opportunity. Among the multinational banks ABN AMRO Bank (85 cr.), Standard Chartered Bank (15 cr.) and HSBC Bank (12 cr.) has also developed their own strategies and model for lending to the sector. (Please Note: these figures are as of last survey of 2005). The government as also announced opening up of the external commercial borrowing (ECB) route for the micro finance institutions to allow cheaper foreign funds for the sector. Starting microfinance institutions (MFI) has become easier with the governments backing t o the sector. This has led to many fresh graduates, laid off employees and social activists starting their own venture. This venture has provided us an opportunity to overlook some of the glamorous jobs and ventures to contemplate about micro credit which in one way is a glamorous, but certainly has immense potential and some consider it is the next big thing.

INTRODUCTION TO MICROFINANCE
The term Microfinance covers an increasingly wide range of products processes and services. Given this variety of associations (and its increasingly rather liberal usage to describe all small financial interactions), it is necessary to highlight some key dimensions of microfinance which can provide definitional boundaries around the concept. The key features of microfinance are as follows: It is concerned with provision of financial services to people who are economically poor and who therefore experience financial exclusion, in that they do not have ready access to mainstream, commercial financial services. It has a community and/or social agenda inherent in its purpose, mission and/or goals- and the provision of various financial services may be means to achieving this purpose rather than an end in itself. The size of the transaction is relatively small compared to typical transactions dominant in mainstream financial services. It includes the full range of financial services to which poor people need access- it is not limited to the provision of credit. Microfinance is the provision of broad range of financial services such as deposits, loans, payment services, money transfer, and insurance to poor and low income households and their microenterprises. Microfinance services are provided by three types of sources: 1. Informal sources such as money lenders and shopkeepers 2. Semiformal institutes, such as nongovernment organizations 3. Formal institutions, such as rural banks and cooperatives Informal Sources: Informal institutions (such as self-help groups, credit associations, families, individual money lenders) properly do not have the status of institutions. They are providers of microfinance services on a voluntary basis and are not subject to any kind and control or regulation.

Formal Institutions: Formal institutions can be further classified into three main categories: a) Microfinance banks (MFBs) b) Microfinance oriented banks (MFOBs) c) Microfinance sensitive banks (MFSBs)