This document provides an overview of microfinancing, including its origins and impact. Key points include: - Microfinancing involves providing small loans to poor individuals who lack access to traditional banking. This allows them to start businesses and lift themselves out of poverty. - Professor Yunus founded the Grameen Bank in Bangladesh in 1976, pioneering the microfinancing model. It now has over 6 million borrowers, most of whom are women. - Studies show microfinancing increases household savings and income, and shifts borrowing away from moneylenders toward more formal sources. - India has promoted microfinancing through development banks, encouraging NGOs and self-help groups to distribute loans to the

1. “Self realization and self initiative
are the two most powerful
weapons to wash poverty out from
the world”
– CHANAKYA
(World’s Greatest Ancient Economic and
Political Scholar).

2. MICROFINANCE

3. WHAT IS MICRO FINANCING?
 They are very small loans, made to the
rural poor in developing countries who
normally do not qualify for traditional
banking credit.
 This is often the only way they can
establish a business and lift
themselves out of poverty.
 Microfinance refers to the provision of
financial services to low-income
clients, including consumers and the
self-employed.

4. WHAT IS MICRO
FINANCING?
 More broadly, it refers to a movement
that envisions “a world in which poor
have permanent access to an
appropriate range of high quality
financial services, including not just
credit but also savings, insurance, and
fund transfers. Those who promote
microfinance generally believe that such
access will help poor people out of
poverty.

5. ORIGIN OF MICRO FINANCING
 Although neither of the terms microcredit or
microfinance were used in the academic
literature before the 1980s or 1990s, the
concept of providing financial services to low
income people is much older.
 While the emergence of informal financial
institutions in Nigeria dates back to the 15th
century, they were first established in Europe
during the 18th century as a response to the
enormous increase in poverty since the end of
the extended European wars.(1618 –1648).

6. ORIGIN
 In 1720 the first loan fund
targeting poor people was
founded in Ireland by the
author Jonathan Swift.
 Professor Yunus founded his
Grameen Bank in 1976 i.e.
first MICROFINANCE Professor Yunus Pioneer of
institute. Grameen bank &
microfinance.

7. GRAMEEN BANK
 Professor Yunus founded his Grameen Bank
in 1976 during a devastating famine in
Bangladesh.
 Today it has 6.6 million borrowers of whom
97% are women.
 This focus on female borrowers in a society
where women are frequently forced to take
responsibility for their entire family is one of
the features that caught the Nobel
Committee's attention.

8. PROVEN IMPACT OF MICRO-
FINANCING
 Increase in Savings
◦ While most households given
micro-credits were having
negligible or no savings, this
improved to Rs. 160-Rs. 460
and in some cases, the
average household savings
rose to as high as Rs. 1444.

9. PROVEN IMPACT OF MICRO-
FINANCING
 Changes in Borrowing Patterns
◦ With improvement in above two
factors, people were more
ready to borrow from the semi-
formal and formal sector rather
than their traditional creditors
i.e. friends and family,
moneylenders, landlords.

10. PROVEN IMPACT OF MICRO-
FINANCING
 Impact on income
◦The average net
income per household
increased from Rs
20177 to Rs. 26889.

11. HOW DOES MICROFINANCE WORK?
 The poor stay
poor, not
because they are
lazy but because
they have no
access to
capital.
 Grameen
transactions take
place at the village

12. HOW DOES MICROFINANCE WORK?
 By avoiding both employers and
immoral local money lenders the
Grameen loan aims to break a
circle of exploitation that
frequently condemns rural
villagers to lives of poverty.
 Typically a Grameen borrower
will use a loan to buy tools and
equipment to set up on their own
business.

13. OTHER SIDE OF
COIN.
 Critics argue that the
Grameen idea is in danger of
being oversold.
 But, Professor Yunus was
adamant that his bank could
repay all of the money it
raised from the commercial
sector.

14. WHY MICRO FINANCING?
 Traditionally, banks have not provided
financial services to clients with little or no
cash income.
 There is a break-even point in providing loans
or deposits below which banks lose money on
each transaction they make. Poor people
usually fall below it.
 Because of these difficulties, when poor
people borrow they often rely on relatives or
a local moneylender, whose interest rates can
be very high.

15. WHY MICRO FINANCE?
Microfinance has been growing
rapidly.
 The industry has been growing
rapidly and there have been concerns
that the rate of capital flowing into
microfinance is a potential risk unless
managed well.

16. IS MICRO FINANCE CHARITY?
 Microfinance can also be
distinguished from charity.
 It is better to provide grants
to families who are poor, or
so poor they are unlikely to
be able to generate the cash
flow required to repay a
loan.
 So microfinance is not

17. OBSTACLES TO
BUILD A SOUND
COMMERCIAL
MICROFINANCE
INDUSTRY

18. OBSTACLES TO BUILD A SOUND
COMMERCIAL MICROFINANCE INDUSTRY
1. Inappropriate donor subsidies
2. Poor regulation and supervision of
deposit-taking MFIs
3. Few MFIs that meet the needs for
savings, remittances or insurance
4. Limited management capacity in MFIs
5. Institutional inefficiencies
6. Need for more spreading and adoption
of rural, agricultural microfinance
methodologies.

19. MICRO FINANCING IN INDIA
 Since independence, various
governments in India have
experimented with a large number of
grant and subsidy based poverty
improvement programmes.
 These programmes became
unsustainable.
 This not only led to misuse of both
credit and subsidy but banks never
looked at it as a profitable and

20. MICRO FINANCING IN INDIA
 Success stories in neighboring
countries, like Grameen Bank in
Bangladesh, Bank Rakiat in
Indonesia, Commercial & Industrial
Bank in Philippines etc, gave further
boost to the concept in India in the
1980s.
 India thus adopted the similar model
of extending credit to the poorest
sector and took a number of steps to

21. FINANCIAL NEEDS OF POOR PEOPLE
Types of financial needs:-
 Lifecycle Needs: such as
weddings, funerals, childbirth,
education, homebuilding,
widowhood, old age.
 Personal Emergencies: such as
sickness, injury, unemployment,

22. FINANCIAL NEEDS OF POOR PEOPLE
 Disasters: such as fires, floods,
cyclones and man-made events
like war or bulldozing of dwellings.
 Investment Opportunities:
expanding a business, buying
land or equipment, improving
housing, securing a job (which
often requires paying a large
bribe), etc.

23. FINANCIAL NEEDS OF POOR PEOPLE
 Poor people find creative and
often joint ways to meet these
needs, primarily through
creating and exchanging
different forms of non-cash
value.
 Including livestock, grains,
jewellery and precious metals.

24. TYPES OF
ORGANIZATIONS
 Microfinance providers in
India can be classified
under three broad
categories:
◦ formal,
◦ semiformal,
◦ And informal.

25. FORMAL
SECTOR
 The formal sector comprises of the
banks such as NABARD, SIDBI and
other regional rural banks (RRBs).
 They primarily provide credit for
assistance in agriculture and micro-
enterprise development and primarily
target the poor.
 Their deposits at around Rs.
350billion and of that, around Rs.
250billion has been given as

26. SEMI FORMAL
SECTOR
 The majority of institutional
microfinance providers in India are
semi-formal organizations broadly
referred to as MFIs.
 Registered under a variety of legal
acts, these organizations greatly differ
in values, size, and capacity. There
are over 500 non-government
organizations (NGOs) registered as
societies, public trusts, or non-profit

27. MFI INVOLVED IN MICROFINANCE
 Association for Sarva Seva Farms
(ASSEFA)
 Mitrabharati - The Indian microfinance
Information Hub Mysore Resettlement
and Development Agency (MYRADA)
 SADHAN - The Association of
Community Development Finance
Institutions
 SEWA: Self-help Women's Association
 SKS India - Swayam Krishi Sangam
 Streedhan - Banking with Rural Women

28. Ngo’s involved in
microfinance
 CDF (Co-operative Development
Foundation) in Andhra Pradesh
 LHWRF (Lupin Human Welfare
Research Foundation) in Rajasthan
 UPLDC (Uttar Pradesh Land
Development Corporation) in Uttar
Pradesh
 Group Enterprise Development
Project of EDI (Entrepreneurship
Development Institute of India) in

29. INFORMAL SECTOR
 In addition to friends and family,
moneylenders, landlords, and
traders constitute the informal
sector.
 While estimates of their
importance vary significantly, it is
undeniable that they continue to
play a significant role in the

30. Steps taken by India to
promote micro-financing
 Government set up
development banks, such as
SIDBI, NABARD which focused
on rural credit and micro-
financing.
 NGOs and SHGs were
encouraged to become the
govt’s arm in extending micro-
credit to the poor.

31. Steps taken by India to promote
micro-financing
 They were provided supplementary
credit needed to fund the credit,
paper work was reduced between
them and the banks.
 Also, the govt assisted in mobilizing
funds from formal financial
institutions to meet the larger credit
needs of these organizations.

32. FOCUS ON WOMEN FOR MICRO -
CREDITS
 Among the poor, the poor women are
the most disadvantaged - they are
characterized by lack of education and
access to resources, both of which are
required to help them work their way
out of poverty and for upward economic
and social mobility.
 The problem is more acute for women
in countries like India, despite the fact
that women’s labor makes a critical
contribution to the economy.

33. FOCUS ON WOMEN FOR
MICRO - CREDITS
 Evidence shows that groups of
women are better customers than
men - they are better managers of
resources - benefits of loans are
spread wider among the household if
loans are routed through women -
mixed groups are often inappropriate
in Indian society - record of all-male
groups is worse than that of all-

34. THANK YOU