CONTENTS

CHAPTER NO PARTICULARS PAGE NO

CHAPTER -I  Introduction to the concept 2-3
(Introduction) 

4
 Scope of the study

Statement of the problem --

 Objective of the study 5

Research methodology 6

CHAPTER -II  Profile

(Profile of the
Company)

 industry profile 7

 company profile 8-15


CHAPTER -III  Literature Survey

Conceptual and theoretical review 16-23

CHAPTER -IV Data analysis, interpretation

Analysis Part – I &Analysis Part – II 25-36

CHAPTER V Conclusions

 Summary of findings 37

 Recommendation 38

 Bibliography 39

 Annexure 40-
 INTRODUCTION

Microfinance is defined as any activity that includes the provision of

financial services such as credit, savings, and insurance to low income
individuals which fall just above the nationally defined poverty line, and
poor individuals which fall below that poverty line, with the goal of creating
social value. The creation of social value includes poverty alleviation and the
broader impact of improving livelihood opportunities through the
provision of capital for micro enterprise, and insurance and savings for
risk mitigation and consumption smoothing. A large variety of actors provide
microfinance in India, using a range of microfinance delivery methods. Since
the ICICI Bank in India, various actors have endeavored to provide access to
financial services to the poor in creative ways. Governments also have
piloted national programs, NGOs have undertaken the activity of raising
donor funds for on-lending, and some banks have partnered with public
organizations or made small inroads themselves in providing such services.
This has resulted in a rather broad definition of microfinance as any activity
that targets poor and low-income individuals for the provision of financial
services. The range of activities undertaken in microfinance include group
lending, individual lending, the provision of savings and insurance,
capacity building, and agricultural business development services. Whatever
the form of activity however, the overarching goal that unifies all actors in
the provision of microfinance is the creation of social value.

MICROFINANCE DEFINATION

According to International Labor Organization (ILO),

“Microfinance is an economic development approach that involves

providing financial services through institutions to low income clients”.
In India, Microfinance has been defined by “The National Microfinance
Taskforce, 1999” as “provision of thrift, credit and other financial services
and products of very small amounts to the poor in rural, semi-urban or
urban areas for enabling them to raise their income levels and improve
living standards”.

"The poor stay poor, not because they are lazy but because they have no
access to capital."

The dictionary meaning of ‘finance’ is management of money. The

management of money denotes acquiring & using money Micro Finance is
buzzing word, used when financing for micro entrepreneurs Concept of
micro finance is emerged in need of meeting special goal to empower under-
privileged class of society, women, and poor, downtrodden by natural
reasons or men made; caste, creed, religion or otherwise. The principles of
Micro Finance are founded on the philosophy of cooperation and its central
values of equality, equity and mutual self-help. At the heart of these
principles are the concept of human development and the brotherhood of
man expressed through people working together to achieve a better life for
themselves and their children. Traditionally micro finance was focused on
providing a very standardized credit product. The poor, just like anyone else,
(in fact need like thirst) need a diverse range of financial instruments to be
able to build assets, stabilize consumption and protect themselves against
risks. Thus, we see a broadening of the concept of micro finance--- our
current challenge is to find efficient and reliable ways of providing a richer
menu of micro finance products. Microfinance is not merely extending
credit, but extending credit to those who require most for their and family’s
survival. It cannot be measured in term of quantity, but due weight age to
quality measurement. How credit availed is used to survive and grow with
limited means

Microfinance in simple words can be defined as a type of banking service

that is provided to unemployed or low-income individuals or groups who
would otherwise have no other means of gaining financial services.
Ultimately, the goal of microfinance is to give low income people an
opportunity to become self-sufficient by providing a means of saving money,
borrowing money and insurance.

MICROFINANCE
Traditionally banks and Lending Institutions do not lend money to low
income Individuals. The reasons being

• Lack of Information about Individuals.

• Collateral.

• High Transaction cost of processing

Microfinance provides a solution for the above problem.

GOALS OF MICROFINANCE

• Eradicate Extreme Poverty & Hunger

• Achieve Universal Education.

• Promote Gender Equality & Women’s Empowerment.

• Reduce Child Mortality

• Combat Diseases

• Developing Entrepreneurial Spirit

 SCOPE OF STUDY

 It will serve as a guide to others who are willing to get in-depth

knowledge on microfinance.

 This project is limited to SKS Microfinance Ltd (SKSMPL) &

Bandhan financial services private ltd.

 Project work focused on only microfinance in India.

 A study of microfinance is helpful to the both microfinance companies

to understand their growth in microfinance world.

STATEMENT OF PROBLEM

Determining the attributes, which influence & drive low income group’s
loan preference towards a microfinance loan.
These attributes include interest rate, loan amount, and
microfinance loan lending process
 OBJECTIVE OF THE STUDY

 To study the concept of microfinance in India.

 To study the various aspects of microfinance & their financial services.

 To analysis the profitability margin of the firm& growth in microfinance

world.

 To understand role & implication of microfinance in inclusive growth of

economy.

LIMITATION OF THE STUDY

Limitations of the study can be summarized as below

 Geographical Constraint:-
This Study is only for microfinance in India.

 Accuracy Constraint:-
As the data is collected is on secondary basis it have a higher possibility
of varying in accuracy.
 RESEARCH METHODOLOGY

Research Methodology is a systematic method of discovering new facts or

verifying old facts, their sequence, inter-relationship, casual explanation and
the natural laws which governs them.

Research Methodology explained by Redman and Mory are as follows

“systematized effort to gain new knowledge”

In Research Methodology mainly Data plays an important role.

The Data is divided in two parts:

a) Primary Data.
b) Secondary Data.

SOURCES OF DATA:
The task of data collected after a research problem has been defined and
research design. While deciding about the method of data collection to be
used for the study, the researcher should keep in mind two types of data viz,
primary and secondary. The primary data are those which are collected
freshly and for the first time, and thus happen to be original in character.
The secondary data, on the other hand, are those, which have already, been
passed through the statistical process. The sources of data for this research
are both from primary and secondary.

Secondary Data
Secondary data include appropriate materials from magazines, internet, and
company brochure and by means of discussion with the guide, Annual
Report.
 INDUSTRY PROFILE

A microfinance institution (MFI) is an organization that provides financial

services to the poor. This very broad definition includes a wide range of
providers that vary in their legal structure, mission, and methodology.
However, all share the common characteristic of providing financial services
to clients who are poorer and more vulnerable than traditional bank clients.

During the 1970s and 1980s, the microenterprise movement led to the
emergence of nongovernmental organizations (NGOs) that provided small
loans for the poor. In the 1990s, a number of these institutions transformed
themselves into formal financial institutions in order to access and on-lend
client savings, thus enhancing their outreach. Specialized microfinance
institutions have proven that the poor are “bankable”. Today, formal
institutions are rapidly absorbing the lessons learned about how to do
small-transaction banking. Many of the newer players in microfinance, such
as commercial banks, have large existing branch networks, vast distribution
outlets like automatic teller machines, and the ability to make significant
investments in technology that could bring financial services closer to poor
clients. Increasingly, links among different types of service providers are
emerging to offer considerable scope for extending access.

A microfinance institution (MFI) is an organization that provides

microfinance services – loans, savings, maybe even insurance – to the
world’s poor. An MFI can operate as a nonprofit such as a non government
organization (NGO), credit cooperative, non bank financial institution (NBFI),
or even a formal, regulated for profit bank.
MFIs differ in size and reach; some serve a few thousand clients in their
immediate geographical area, while others serve hundreds of thousands,
even millions, in a large geographical region, through numerous branches.
Many MFIs offer services beyond loans and savings, including education on
business and financial issues and social services focused on health and
children.

Microfinance companies are the financial institutions that offer small-scale

financial services in both the forms – credit and savings, especially to the
poor in rural, semi-urban and urban areas. These financial services are
meant to help them in undertaking economic activities, mitigating
vulnerabilities to income shocks, smoothening consumption, increasing
savings and supporting self-empowerment. There are a number of
microfinance companies in India, which play some pivotal roles to the
development of India. India’s microfinance sector is fragmented with more
than 3000 microfinance companies (MGIs), NGOs and NGO-MFIs. The top
10 microfinance companies in India are estimated to account for almost 74
per cent of the total loans outstanding. It can be added here that the total
loan outstanding of Indian microfinance sector lies between ` 160-175
billion. As on March 31, 2009, almost 17 Indian microfinance companies
have more 1 million outstanding loans.
COMPANY PROFILE

COMPANY NAME: - SWAYAM KRISHI SANGAM

DATE OF ESTABLISHED: - Jan 1 1997

CURRENT LEGAL STATUS: NBFI

PRODUCTS & SERVICES: - LOAN

PRODUCTS: - Income generating loans

Mid Term Loans
Loan Cover Insurance

TOTAL BRANCHES &OFFICES: - 2029

TOTAL PERSSONEL:- 21,154

HEAD OFFICE ADDRESS: -

1-10-60 to 62, Ashok Raghupati Chambers,

Opp. Shopper Stop, Begumpet
Secunderabad,
Andhra Pradesh
500 016

MISSION STATEMENT

“Our purpose is to eradicate poverty. We do that by providing financial

services to the poor and by using our channel to provide goods and
services that the poor need”.

LOGO:-
 HISTORY OF SKS MICROFINANCE PRIVATE LTD

SKS stands for Swayam Krishi Sangam, which in Hindi means “self-
cultivation society.” Dr. Vikram Akula, Founder and Chairperson, founded
SKS in 1997 and launched operations in 1998 in Andhra Pradesh, India
with the mission to eradicate poverty. In 1996-97, while still a PhD graduate
student, Akula raised $52,000 in seed funding from 357 family members
and friends to start SKS as a non-profit organization. In 2005, SKS
converted into a non-banking financial company (NBFC) which is regulated
by India’s central bank, the Reserve Bank of India (RBI).

The Company was incorporated as ‘SKS Microfinance Private Limited’, on

September 22, 2003 under the Companies Act, 1956. The Registered Office
of the Company is situated at Ashoka Raghupathi Chambers, D No. 1-10-60
to 62, Opposite to Shoppers Stop, Begumpet, Hyderabad 500 016, Andhra
Pradesh. The Company had obtained a certificate of registration from the
RBI on January 20, 2005 to commence the business of a non-banking
financial institution without accepting public deposits. With effect from
September 1, 2005, the Company acquired business operations, assets and
loan portfolio from SKS Society that was structured as a NGO and was
engaged in microfinance.

The name of the Company was changed from ‘SKS Microfinance Private
Limited’ to ‘SKS Microfinance Limited’ pursuant to a resolution of our
shareholders passed at an EGM held on May 2, 2009 and fresh certificate of
incorporation bearing CIN number U65999AP2003PLC041732 was issued
on May 20, 2009. Subsequently, a fresh certificate of registration dated
June 3, 2009 was obtained from RBI for carrying on the business of non-
banking financial institution without accepting public deposits. The
Company is the largest MFI in India in terms of total value of loans
outstanding, number of borrowers and number of branches, according to
the October 2009 CRISIL report titled India Top 50 Microfinance
Institutions, or the CRISIL Report. The Company is engaged in providing
microfinance services to women in the lower income segment predominantly
located in rural areas in India. Sks microfinance company Converted into a
public limited company in May 2009 and launched an initial public offering
on July 28, 2010. 

PRODUCT PROFIL OF SKS LTD

PROPRIETARY PRODUCTS
Product Features Benefits
Income Loans range from Rs. 4,000 Provides self-employed
Generation to Rs. 10,000 for the first women financial assistance
Loans (IGL) loan; subsequent loan to support their business
- Aarambh amounts determined by past enterprises, such as raising
credit history and increased livestock, running local retail
each in set increments up to shops called kirana stores,
a maximum of Rs. providing tailoring and other
26,000Term of the loan is 50 assorted trades and services
weeks with principal and
interest payments due on a
weekly basis

12.5% flat interest rate /

24.55% annual effective
interest rate
Mid-Term Loan amounts range from Provides self-employed
Loan (MTL) Rs. 2,000 to Rs. 14,000 in women financial assistance
- Vriddhi each annual cycle. to support their business
Available any time after the enterprises, such as raising
completion of 20 weeks & livestock, running local retail
before 40 weeks of an shops called kirana stores,
IGLcycleTerm of the loan is providing tailoring and other
50 weeks with principal and assorted trades and services
interest payments due on a
weekly basis
12.5% flat interest rate /
24.55% annual effective
interest rate
Emergency Interest free emergency Designed to meet the
Loans and loans range from Rs. 500 to unforeseen emergency
Advances - Rs. 2,000 requirements of members
Raksha Term of the loan is 20 weeks
 with a bullet repayment Disbursed within 24 hours
Interest free funeral of request
advances of Rs. 1,000
adjusted out of the claim Funeral advance paid to a
settlement of loan cover member’s family upon the
insurance death of the member or her
spouse

Life Interest free loans of Rs. 500 Issued to members to pay

Insurance Term of 25 weeks with their life insurance
Loans principal repaid weekly premiums during the initial
25 week period
Helps to promote habit of
savings and reduction of
vulnerability among
members
Mobile Financing of mobile phones Provides financing for mobile
Loans and telephone services phones and telephone
Loan amounts range from services to our members
Rs. 1,500 to
Rs.3,00026.14% annual
effective interest rate and
loan processing fee of
1%Term of 25 weeks
Sangam Working capital loans Provides a working capital
Store Loans ranging from Rs. 1,000 to loan to fund the needs of our
Rs. 12,500 members who own and
Interest free operate kirana stores
Term of the loan is 14 days The program allows these
members to purchase their
inventory of consumer goods
and groceries from a
national wholesaler at
wholesale prices
Housing Loans range from Rs. 50,000 Provides financial access to
Loans to Rs. 150,000Members women for construction of
must have completed at new houses or improvement
least 3 IGL cycles to qualify & extension of existing
or one ILP to be completed houses
Term of loan is 3 to 5 years
with principal and interest
payments due on
amonthlybasis11.9% flat
interest rate, 21% annual
effective interest rate
In addition, loan processing
 fee of 2%

DISTRIBUTORS PRODUCTS

Product Features Benefits

Life Weekly Upon death, we disburse to the beneficiary
Insurance payment of the full sum assured of Rs. 5,000 plus the
Rs. 20 for the account value, which is equal to the
term of five aggregate of the premiums paid plus interest
years accrued, if any, less any charges for the
administration of the policy

In the event the death is deemed an

accidental death, the beneficiary receives Rs.
10,000 plus the account value

Upon maturity in five years where no death

has occurred, we disburse to the policyholder
the account value

BOARD OF DIRECTORS

Director Name Designation

Vikram Akula Executive Chairman
M R Rao Managing Director & Chief
Executive Officer
V Chandrasekaran
Independent Director
Pramod Bhasin
Independent Director
P H Ravi Kumar
Independent Director
Tarun Khanna
Independent Director
Geoffrey Tanner
Woolley Independent Director
 Sumir Chadha Director
Paresh D Patel Director

COMPANY PROFILE

COMPANY NAME: BANDHAN FINANCIAL SERVICES PRIVATE LTD

DATE OF ESTABLISHED: - 1995

Current Legal Status: NBFI

PRODUCTS & SERVICES: - LOAN

PRODUCTS: - Loan
Pension services
Remittance services

TOTAL BRANCHES &OFFICES: - 1050

6620
TOTAL PERSSONEL:-

HEAD OFFICE ADDRESS: -

EC - 76 Sector 1 Salt Lake City,

Kolkata 700 064, India

MISSION STATEMENT

“To reduce, economic & poverty significantly by creating employment

through providing cost effective, sustainable financial & other
development services”.

LOGO:-
 HISTORY OF BANDHAN MICROFINANCE LTD
HISTORY OF BANDHAN FINANCIAL SERVICES PRIVATE LTD

Bandhan Financial Services Pvt. Ltd. operates as a microfinance institution

in India. It offers micro, micro enterprise, micro small and medium
enterprise, and micro health loans. The company provides loans for women
and families; and agriculture, zari work, embroidery, animal husbandry,
crafts work, small trading, vegetable vending, fishing, poultry, rice husking,
horticulture, manufacture of surgical instruments, pottery, small services,
and small businesses, as well as for small cottage industries. The company
was incorporated in 1995 and is based in Kolkata, India. It has branches in
India.

Bandhan is working towards the twin objective of poverty alleviation and

women empowerment. It started as a Capacity Building Institution (CBI) in
November 2000 under the leadership of Mr. Chandra Shekhar Ghosh.
During such time, it was giving capacity building support to local
microfinance institutions working in West Bengal. Bandhan opened its first
microfinance branch at Bagnan in Howrah district of West Bengal in July
2002. Bandhan started with 2 branches in the year 2002-03 only in the
state of West Bengal and today it has grown as strong as 412 branches
across 6 states of the country! The organization had recorded a growth rate
of 500% in the year 2003-04 and 611% in the year 2004-05. Till date, it has
disbursed a total of Rs. 587 cores among almost 7 lakh poor women. Loan
outstanding stands at Rs. 221 cores. The repayment rate is recorded at
99.99%. Bandhan has staff strength of more than 2130 employees.

Operational Methodology

Bandhan follows a group formation, individual lending approach. A group

of 10-25 members are formed. The clients have to attend the group meetings
for 2 successive weeks. 2 weeks hence, they are entitled to receive loans.
The loans are disbursed individually and directly to the members.

Economic and Social Background of Clients

 Landless and asset less women

 Family of 5 members with monthly income less than Rs. 2,500 in rural
and Rs. 3,500 in urban

 Those who do not own more than 50 decimal (1/2acre) of land or capital
of its equivalent value

PRODUCT PROFILE OF BANDHAN LTD

LOAN PRODUCT

BOARD OF DIRECTORS

Director Name Designation

Shri Chandra Shekhar Chairman and Managing Director
Ghosh
 Mr. Abhijit Ghosh Assistant General Manager of Finance

Mr. Rahul Mitra Company Secretary

Mr. Ronendra Choudhury General Manager

Mr. Pritish Saha Assistant General Manager

CONCEPTUAL DESCRIPTION

Evaluating progress of the Indian microfinance sector from an investor’s

perspective

The microfinance sector in India has developed a sustainable business

model that has overcome challenges traditionally faced by the financial
services sector in servicing the low-income population. The paper states that
the Indian microfinance sector:

 Generates a Return on Equity of 20 – 30 percent, driven by commercial

bank financing, strong operating efficiency and high portfolio quality;
 Is increasingly becoming a viable investment sector for commercial and
social investors given its growth and maturity;
 Has equity valuations that are higher than the financial sector due to high
growth expectations and substantial availability of debt;
 Can expect growth in availability of debt to support expansion as more
domestic banks and alternative debt providers enter the market;
 Can, over the short and medium term, see MFI shares trade at significant
premia to book value and cool down over the longer term as the industry
matures.

Finally, the Indian microfinance sector presents several exit opportunities

including secondary and trade sales as well as mergers and acquisitions.
Larger MFIs may also consider going public.

Credit Demand of the Poor

It is estimated that in India there exist approximately 7.5 crores poor

households, out of which 6 crores are rural and 1.5 crores urban
households. One estimate assumes that the total annual requirement of
credit for the rural poor families would be at least Rs.15, 000 crores on the
basis of a maximum need of Rs.2000/- per family. Another estimate for
requirement of credit (excluding housing) is Rs.50, 000 crores assuming that
annual average credit usage are Rs.6000/- per rural household, and
Rs.9000/- for poor urban household. An additional Rs.1000 crore is
estimated to be required for housing per year. Apart from micro-credit, they
require savings and insurance also. Meanwhile, bank advances to weaker
section aggregated Rs.9700 crore during 1997-98. MFIs and SHGs are
estimated to have provided about 137 crore (cumulative up to September
1998). 1 The above scenario, suggests a vast unmet gap in the provision of
financial services to the poor. Moreover, 36% of the rural households are
found to be outside the fold of institutional credit.

Growth of microfinance
The growth of microfinance is visible in many aspects. There are more than
2000 NGOs involved in the NABARD SHG-Bank linkage program. Out of
these, approximately 800 NGOs are involved in some form of financial
intermediation. Further, there are 350 new generation co-operatives
providing thrift and credit services. According to our estimate, the present
total outstanding, including Sa-Dhan members and bank linkages is
approximately Rs.700 crores (Rs. 150 crores of Sa-Dhan members and
another Rs. 550 crores from the Banking system). The total client base is
estimated at 6-8 million as opposed to the Government of India (GOI)
intention to reach 25 million clients. The growth of community institutions
has taken place with the role to take social and financial intermediation. A
numbers of community banks have come into existence at village and block
levels call ' Federation of Self Help Groups'.

The inadequacies of the formal financial system to cater to the needs of the
poor and the realization of the fact that the key to success lies in the
evolution and participation of community based organizations at the
grassroots level led to the emergence of new generation of MFIs.

One kind of MFI is an NGO engaged in promoting Self Help Groups (SHGs)
and their federations at a cluster level and linking SHGs with Banks under
the Scheme. Examples are Myrada in Karnataka, which has promoted
Sanghmitra, a company of its village saving and credit sanghas, PRADAN
which has established a large number of SHGs and federated them under
Damodar in Bihar, Sakhi Samiti in Rajasthan.

Another kind is NGO-MFI directly lending to the poor borrowers, who are
either organized into SHGs or into Grameen Bank type of groups after
borrowing bulk funds from SIDBI, RMK and FWWB. Examples in this
category are Rashtriya Gramin Vikas Nidhi (RGVN) which runs credit and
savings programme in Assam and Orissa on the lines of Grameen Bank,
Bangladesh. Also we have SHARE in AP, ASA in Tamil Nadu under this
category.

There are MFIs which are specifically organized as cooperatives, such as

over 500 Mutually Aided Cooperative Thrift and Credit Socities (MACTS) in
 AP, promoted among others by Cooperative Development Foundation (CDF)
and the SEWA Bank in Gujarat which also runs federations of SHGs in nine
districts.

THEORETICAL BACKGROND
ROLE OF MICROFINANCE

The micro credit of microfinance programme was first initiated in the year
1976 in Bangladesh with promise of providing credit to the poor
without collateral , alleviating poverty and unleashing human creativity
and endeavor of the poor people. Microfinance impact studies have
demonstrated that

 Microfinance helps poor households meet basic needs and protects them
against risks.

 The use of financial services by low-income households leads to

improvements in household economic welfare and enterprise stability and
growth.

 By supporting women’s economic participation, microfinance empowers

women, thereby promoting gender-equity and improving household well
being.

 The level of impact relates to the length of time clients have had access to
financial services.

ADVANTAGE OF MICROFINANCE

An effective way to fight poverty

Microfinance has proven to be a very effective development tool because it

provides empowerment instead of charity. Typically, microfinance clients are
self-employed household entrepreneurs who lack the resources to invest in
their business and their future and thus cannot escape the grips of extreme
poverty. Here is a typical microfinance success story taken from the United
Nations Capital Development Fund
Banking services at your doorstep
An incredible feature of microfinance is its convenience. Credit officers,
usually locals, are hired by the MFI branch office and have the task of going
from village to village (or house to house in urban areas) to collect and
disburse funds. This is very convenient for clients because they rarely have
to travel in order to receive their banking services. Often the credit officer
will also organize group meetings at which a variety of activities can take
place. This provides an opportunity for the community to give feedback and
to exchange knowledge.

BENEFITS OF MICROFINANCE

1) It isn't a hand out-

As mentioned earlier, microfinance isn't about just giving out money to the
poor. On the contrary, these are small loans that are paid back with
interest. Of course, many people are skeptical when it comes to giving the
poor financial loans. However, they are surprised to learn that of the over
100 million microfinance loans that have been given out, 97% of them have
been repaid. That's why you can't consider microfinance a hand out, but
rather, it's a hand up.

2) It allows the poor to receive a loan-

Traditionally, the poor have been unable to receive loans. That's because
they don't have anything to offer as collateral. As a result, they get stuck in
a vicious cycle of poverty, living and working in poor, rural areas. Should
adversity strike, they simply don't have the means to combat it.
Microfinance allows the poor to get the loans they need to save, invest, and
create a sustainable lifestyle of financial independence and growth. These
loans are used productively by the poor to create their own businesses, grow
their assets, and get out of poverty once and for all.

3) It empowers women-

Many efforts of the microfinance industry are aimed at empowering women

to create their own businesses. From microfinance India to microfinance in
other developing countries, small loans are given to those women who live
on less than $1 per day. By giving these poor women loans, the microfinance
industry not only helps them pull themselves out of poverty, but it also
promotes gender equality throughout the world.

4) It creates long-term financial independence-

The most important benefit of microfinance in India is that it helps create

long-term financial independence in these poverty-stricken areas. See, it's
one thing to send money, clothes, and other goods to the poor. It's a great
gesture, but the results of this traditional style of charity are short-lived.
Microfinance loans help create sustained impact by educating recipients on
how to create their own businesses and how to properly manage and grow
their money.

OBJECTIVE OF MICROFINANCE

Traditionally, when a person wants to start a business venture, they go to a

bank for a loan. But what should a budding entrepreneur do if he is too
poor to obtain financing to start a profitable business? The answer lies in a
relatively new branch of financial services called microfinance. Its purpose is
to provide basic financial services such as loans, savings and insurance to
underprivileged people. A microfinance institution (MFI) is simply one that
offers such services to the poor; according to the Consultative Group to
Assist the Poor (CGAP), it can be a credit union, commercial bank, financial
non-governmental organization, or a credit cooperative. Following is a list of
the main purposes of microfinance.

 Provide Access to Funds

Typically, the poor acquire financial services like loans through informal
relationships. These loans, however, come at a high cost per dollar loaned
and can be unreliable. Furthermore, banks have not traditionally viewed
poor people as viable clients and often will reject them due to unstable credit
or employment history and lack of collateral. MFIs dismiss such
requirements and provide small loans at high interest rates, thus providing
MFIs the funds they need to continue operation.

 Encourage Entrepreneurship and Self-Sufficiency

Underprivileged people may have potentially profitable business ideas, but

they cannot put them into action because they lack sufficient capital for
start-up costs. Microcredit loans give clients just enough money to get their
idea off the ground so they can begin turning a profit. They can then pay off
their micro-loan and continue to gain income from their venture indefinitely.
  Manage Risk

Microcredit can give impoverished people enough financial stability to cross

from simply surviving to accruing savings. This gives them protection from
sudden financial problems that could have been devastating. Savings also
allow for educational investment, improved nutrition, better living conditions
and reduced illness. Microinsurance provides people the ability to pay for
health care when needed, so they can receive treatment for health
conditions before they become grave and more costly to treat.

 Empower Women

Women make up a large proportion of microfinance beneficiaries.

Traditionally, women (especially those in underdeveloped countries) have
been unable to readily participate in economic activity. Microfinance
provides women with the financial backing they need to start business
ventures and actively participate in the economy. It gives them confidence,
improves their status and makes them more active in decision-making, thus
encouraging gender equality. According to CGAP, long-standing MFIs even
report a decline in violence towards women since the inception of
microfinance.

 Community-Wide Benefits

Generally speaking, microfinance institutions seek to reduce poverty

worldwide. As they obtain funds and services from MFIs, recipients gain
enormous financial benefits which trickle down to others in their families
and communities. New business ventures can provide jobs, thereby
increasing income among community members and improving their overall
well-being. Microfinance services gives hope to people who previously had
little or no opportunity to be self-sufficient.

TOP TEN MICROFINANCE COMPANIES

1) SKS Microfinance Ltd (SKSMPL)

2) Spandana Sphoorty Financial Ltd (SSFL)
3) Share Microfin Limited (SML)
4) Asmitha Microfin Ltd (AML)
5) Shri Kshetra Dharmasthala Rural Development Project (SKDRDP)
6) Bhartiya Samruddhi Finance Limited (BSFL)
7) Bandhan private financial services ltd
8) Cashpor Micro Credit (CMC)
9) Grama Vidiyal Micro Finance Pvt Ltd (GVMFL)
10) Grameen Financial Services Pvt Ltd (GFSPL)

LENDING PROCESS OF MICROFINANCE LOAN

Examples of enterprises established include, buying a buffalo to sell its

milk; starting a kirana store; manufacturing sweets; selling soft drinks;
grinding spices; sewing; candle making; collecting fallen hair for wigs and
extensions; repairing watches; tea or petty shops; vegetable stands; bicycle
repair; carpentry and welding shop or an auto rickshaw.

In groups of five to ten, the women support each other emotionally and
financially by guaranteeing the repayment of each of their loans. With as
little as INR 4,000 (USD 85), a borrower can start a kirana store. With INR
10,000 (USD 212), a borrower can purchase a milking cow / buffalo, sewing
machine, or set up an embroidery unit. Many of the women become leaders
in their communities and undertake projects that benefit all the residents.
The repayment of loans plus interest generates funds that can be reinvested
as a second and third loan or used to start other women on their journey
toward sustainable prosperity. The entire community benefits from
improvement projects taken on by these newly confident and capable
leaders. Microfinance institutions broadly operate under a wide range of
legal structures. They could be registered as NGO, Trusts, Sec 25
Companies, Cooperative Societies, Cooperative Banks, Regional Rural
Banks, Local Area Banks, Public and Private Sector banks, Business
Correspondents and Non-Banking Finance Companies.

SKS & BANDHAN Microfinance is registered with the RBI as a non-

deposit taking NBFC and is regulated by the RBI.
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