MICRO ENTERPRISES FOR

RURAL POVERTY
ALLEVIATION Layout

AN KIT G O EL(P GP /17/309)

AN KITA P R A KAS H(P GP /17/310)
ATH U L BHAR GAV (P GP /17/316)
BHAS KA R (P GP /17/317)
G. S AH ITI (P GP/17/318)

POVERTY IN INDIA- FACTS

Indian Population-1/6th of World Population
Almost 1/3rd of the countrys population lives below
the poverty line
A widening gap between rich and poor
Top 5 percent of the households own 38% of assets
Bottom 60 percent of the households owns13% of
assets
70% population live in rural areas

MAJOR INITIATIVES IN RURAL CREDIT

Social Banking : the elevation of the entitlements of
previously disadvantaged groups to formal credit even if
this may entail a weakening of the conventional banking
practices
Nationalization of Commercial Banks in 1969
Development of Credit Institutions-Regional Rural Banks
or Grameen banks
Integrated Rural Development Programme is a credit
based Rural Poverty Alleviation Programme
implemented through commercial banks

CONCEPT OF MICRO FINANCE

Credit is an important tool for poverty alleviation programs
Micro-credit, as defined by Grameen Bank, symbolizes
small loans extended to the poor for undertaking selfemployment projects that would generate income and
enable them to provide for themselves and their families.
Defining criteria :

Size of the loans

Target Population
households

Micro-entrepreneurs

from

low

income

MAIN PROBLEMS OF MICRO CREDIT

The problem of exact targeting, which means to
ensure that the truly needy people gets the benefit
It faces the screening problem of distinguishing the
good (creditworthy) from the bad (not-socreditworthy) borrowers
The agencies may not be able to monitor and ensure
productive usage of the loans

ROLE OF MICRO FINANCE INSTITUTIONS

Poverty Reduction Tool
Women Empowerment
Development of Overall Financial System
Self Employment
SHG- Bank Linkage programs

POOR: NATURAL ENTREPRENEURS?

Premise : Poor are natural borne entrepreneurs and need the right environment and help
John Hatch, CEO of FINCA
Give poor the opportunities and get out of the way
2 Arguments:
Fresh Ideas-Poor never given a chance
Innovations that better the lives of the poor have to be low hanging fruits
Hindrances:
Less Capital of their own and little access to formal and inexpensive means of credit
High Interest Rates :4% per month- Still manage to repay the loans: High rate of return
on invested capital
BRAC :Incapable clients given an asset, financial allowance for few months and a lot of
hand holding

BUSINESS OF THE POOR: AREAS OF

CONCERN
Tiny Business

No paid staff 0 to 0.57 in Mexico

Limited Assets

Never grow up to sufficient scale

Not making money

For small business in Hyderabad : Median Sales figure was Rs

3600 and median profit Rs 1035

After subtracting the values of the hours spent by household

members, average profits turned negative

How many paid

employees these
businesses have ?

What percent of
business own a
machine?

http://pooreconomics.com/sites/default/files/A%20PDF%20of%20the

ARE THESE BUSINESSES PROFITABLE?

Even after high interest rates , poor still manage to
repay loans.
Rate of return is high
Then why are they not profitable?

MARGINAL AND AVERAGE RETURN

Why overall returns are
low?
Small Scale
Most energy spent on
small and undifferentiated
business

WHY DO BUSINESSES STAY SMALL?

Limit on the loans
Reluctance on the part of borrowers to borrow
Reluctance to invest due to the belief that business will not be
able to absorb the investment.
Nature of Business

Can it be always like

OP ?

WHY DO BUSINESSES STAY SMALL?

To grow a business requires:
Some special skill
A large up front investment in new production
technology

S Shape
Dilemma

ENTREPRENEURSHIP IS TOO HARD?

Loan limits-People cannot borrow to cross the
hump
Saving up to get there will take too long
Lack of commitment on the part of micro
entrepreneur
Is average small Business owner really a
natural entrepreneur?
Are there really a billion barefoot
entrepreneurs?

CHARACTERISTICS OF A GOOD JOB

Security
Stability
Control over the
future
Most Good Jobs are in
City

Parents Employment Hopes for Sons

Government
Teacher
18%

7%

41%

34%

Non teaching
Government Job
Salaried in
Private Firm
Others

LIMITATIONS OF MFI
MFI s are efficient in financial intermediation only
Lack of human resources to provide business
counseling
Mostly have a single loan product
Self help promoting institutions (SHPI) lack in scale
and capacity
SHPI promote only weak SHGs
Banks usually provide short term loans to MFIs

RECOMMENDATIONS
Special bank branches can be set specifically for
microenterprise and SHG lending
Need for new generation livelihood promotion
institutions to address the diverse needs relating to
livelihoods of the poor
District level agencies to link microenterprises with
inputs, technology and markets
Increase in government investment to nurture
microfinance groups address their limitations

REFERENCES
http://indiatoday.intoday.in/story/rich-and-poor-divisionpenury-hdr-planning-commission/1/157212.html
http://www.irdindia.in/Journal_IJACTE/PDF/Vol2_Iss1/13.pdf
Reluctant Entrepreneurs-Poor Economics

Abhijit V. Banerjee and Esther Duflo

Micro-Credit and Rural Poverty: An Analysis of Empirical

Evidence

Author(s): Pallavi Chavan and R. Ramakumar

Source: Economic and Political Weekly

THANK YOU