Sagar A.

Agrawal
Roll No. 22
Assignment no.1

Why do micro finance companies flourish in rural areas?

Introduction to Micro Finance

Financial services given to poor & low Income people (including

women) of Rural Areas to raise their standard of living & can make
them economically sound.
•In 1934 RBI establish Agricultural Credit Department.
•Regional Rural Banks created in 1975.
•NABARD established as an apex agency for rural finance in 1982.

Micro Financial Institutions

Any institution that provide financial services to the poor, it includes:-
•Co-operatives
•Financial NGO
•Credit Unions
•Commercial Bank
•Post Offices
•Insurance Companies etc

A Profile of Rural India

•350 million Below Poverty Line
•95 % has no access to microfinance.
•56 % people still borrow from informal sources.
•70 % doesn’t have any deposit account.
•87 % no access to credit from formal sources.
•Annual credit demand is about Rs.70, 000 crores.
•95 % of the households is without any kind of insurance.
•Informally Microfinance has been in practice for ages.

Services offered in Micro Finance

•Loan
•Deposits
•Insurance
•Pensions

Role & Benefits

Micro Finance : Empowering those at the bottom of the Pyramid

•Targeting the poor
•Poverty Reduction through Social Protection
•Women’s empowerment
•Widening of social capital
•Business development Services
•Other development services
•Insurance services
•Pension services

by virtue of Micro-Finance being primarily available to women, also acts an empowering

tool for rural women. There are now several thousand registered Self Help Groups (SHGs)
and Microfinance Institutions (MFIs) across India. The three largest independent MFIs are
SHARE Microfin, BASIX Finance and SKS.

Microfinance is a tool whose potential we have just started to realise. As and when the MFIs
make further innovations in their operations it might open up new vistas and lead to further
socio-economic upliftment, especially for those, who are ignored by the market forces and
looked down upon as burden by
various governments. If the Micro Finance Institutes can cast its spell, wide and deep into the
Indian hinterland, the so-called ‘Bottom Of the Pyramid’ can do justice to its name, by
being the bedrock of Indian society, over which the relatively well-heeled but thinner layers
are built onto.

SKS Microfinance
SKS was ranked as the Number 1 MFI in India and number 2 in the world by MIX
Market, world’s leading business information provider for MFI industry.
Delivering services at the doorsteps of its members and following clear-cut
processes, SKS has been able to ensure a repayment rate of over 99 % on its loans.

Type NBFC
Industry Finance
Founded 1998
Headquarter Hyderabad, India
s
Area served India
Key people Vikram Akula Chairperson
and founder, Suresh Gurumani
CEO- Managing director
Employees over 20000
Website http://www.sksindia.com/

Micro Finance : Empowering those at the bottom of the Pyramid

MicroFinance can be defined as the provision of financial
services (such as credit, savings and insurance) to the members of
low-income households, which helps them
to augment their income. Often the credit is given to a group of
people, especially women , and the whole
group is responsible for the repayment of the loan. by virtue of
Micro-Finance being primarily available to women, also acts an
empowering tool for rural
women

MicroFinance has been present in India for more than 15 years,

and going by past records one can
infer that poor people, when given access to hassle free and
timely financial services at market rates, repay
their loans and use the proceeds to increase their income and
assets. They often start small business which
taps into the local market and sometimes, even provide
employment to other women in the village, when
their venture gains some size.
Apart from acting as a lender, some of the Micro Finance
Institutions(MFIs) also provides an opportunity to save their
surplus earnings, and earn interest on it, which otherwise would
have remained unutilised. Although the rate of interest charged by
(MFIs) while lending, are generally higher than market rates, it is
still much lesser than that charged by the local moneylender.

Add to it the

Micro Finance : Empowering those at the bottom of the Pyramid

fact, the MFIs also often advise the borrowers on ways to better
utilise their borrowed money and some even
train them with certain vocational skills. It not only saves them
from the avaricious local moneylenders, but

Microfinance is on its way to becoming mainstream. This

transition creates tremendous opportunities for the service
providers involved and, more important- ly for the millions
ofpeople who will,as a consequence, newly have access to finan-
cial services .Yet the shift is neither inevitable nor without risks.
While the volume of microfinance services is clearly growing
rapidly,the numbers obscure the unevenness of services provision
when considered both geo- graphically and from the standpoint of
quality. Estimates of the worldwide number of microfinance
borrowers range from 30 to 152 million.Yet markets in many
countries, including giants such as Brazil and China, remain
untapped relative to those in others ,such as Bangladesh.
Further more, many of the clients included in
these figures lack access to an adequately tailored or diverse set
ofservices,includ- ing not only credit,but also savings,
insurance ,and payment products.As a consequence, for most of
the world’s low income populations,access to financial services
remains either non-existent or substandard.
New applications of technology—improvements in back-end
processing and
integration with cell phones,ATMs,and the Internet—combined
with the entry of
large new players, such as major banking institutions, are
justifiably creating sig-
nificant excitement in the field of microfinance. Yet a possibility
exists that the
resulting disruptions within the industry will ultimately diminish,
rather than

Micro Finance : Empowering those at the bottom of the Pyramid

Microfinance Matures
Opportunities,Risks,and Obstacles for an
Emerging Global Industry

borrowers take loans for a range of income-generating

activities, including livestock, agriculture, trade (such as
vegetable vending), production (from basket weaving to
pottery) and new age business (photography to beauty
parlours). SKS also provides members with interest-free
loans for emergencies as well as life insurance and loan
cover insurance to borrowers.

by virtue of Micro-Finance being primarily available to women,

also acts an empowering tool for rural
women. There are now several thousand registered Self Help
Groups (SHGs) and Microfinance Institutions
(MFIs) across India. The three largest independent MFIs are
SHARE Microfin, BASIX Finance and SKS.

Micro Finance : Empowering those at the bottom of the Pyramid