Reaching the Unreached Microfinance industry is set to reach new heights. With superlative growth numbers in a period of economic downturn, the sector has come to attention of a wider range of investors. Despite the widespread liquidity crunch, the SHG-bank linkage and the group lending microfinance institution (MFI) models recorded impressive increase both in terms of number of households reached and volume of loans. During the year 2008-09 6.9 million new members were added under SHG model taking the total membership tally to 54 million. Meanwhile, in the same period, MFIs added 8.5 million new members, taking the total client base to 22.6 million. The total outstanding microfinance loans including credit to SHGs by banks amounted to Rs.359.39 billion as on March 2009: a growth of 30% over last year. By the end of March 2009, these numbers in combination constituted 1.29% of gross bank credit of scheduled commercial banks1. However the regional bias still exists: the north and eastern India are still largely underserved, and many areas in the north and north-east regions remain entirely untouched. The deeper penetration in new and existing areas has opened many organisations to new and diverse risks. These risks come in the form of multiple lending, large loan size disbursement in poorer markets, migration of borrowers and so on. These risks are further exacerbated by the fact that, with the focus on achieving numbers, poaching of groups and multiple lending has become common within Indian microfinance. Sporadic warning signs have been seen in south where concerted resistance from clients to making repayments in the face of multiple loans is growing. The standardised lending systems, loan amounts, and weekly meetings/repayments ...
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...phisticated deals including a variety of forms of securitisation, non convertible debentures (NCD), commercial paper, purchase of loan books and subordinated debt-based lending have already been completed, and IPOs are anticipated from SKS and at least 3-4 other of the larger NBFCs. Clearly IPOs are the preferred exit route for many of the PE investors – and, if SKS’s model is followed, also for the MFI’s promoters3. Indeed, today an IPO is the inspiration and ambition for a growing number of MFIs and their promoters. Valuations seem to be likely to follow a telco-based model and thus based on the number of clients on an MFI’s books – resulting in huge incentives to rollout and hard-sell standardised products without reference to the needs (or other debts) of the clients. Small wonder there is chorus of concern about the future and direction of microfinance in India.
Women in developing countries are not empowered by micro-loans because it can exert women further into debt. Not all women are smart and educated enough to be able to profit from these micro-loans and instead they can be quite dumb and irresponsible with the exerting them further into debt. This does not apply to all the women who receive micro-loans, but a decent portion of them it does. Although, micro-loans could be the key success to a family's triumph out of poverty, they can still propel people into a rough and tough situation. Also, if a women’s micro-loan does not work out they will be put to shame by their whole entire community.
Markets & Customers: Cashpor provides microfinance and other credit services to below the poverty line women in Uttar Pradesh, Bihar and
As found by Hartangi (2007) that success of Micro finance depends upon the practices of that specific bank, which finance poor people, by quoting and example of BRI (Bank Rakyat, Indonesia) researcher says that they provide technical and moral support to the people they lend money, and make sure they do good, they also choose different collaterals like motorcycle, cars, cattle, and land etc to secure their loan yet making collateral stronger incase the client fails to repay and credits interesting for lower class community. Beside this, Risk management, internal audit, financial procedures, transparent system, dedicated staff, and clear incentives to staff and clients are the factors which contribute toward the successful lending of micro finances. Obamuyi (2009) says that poor credit culture and low risk management can result in low rate of return, which finally ends with the failure of the scheme. The risk of low rate of return can also be minimized by the assistance provided by the MFIs to develop the small business of clients (Zelealem, Temtime, & Shunda, 2003).
The lifestyle of people across the world is developing rapidly. As there is a growing concern for people about the lifestyle and way of living, the scope for the microfinance industry is also at a growing pace. A large number of people across the world prefer finance for the purpose of purchase of consumer durables as well as lifestyle products. As the credit card EMI options are more expensive, people prefer NBFCs for the purpose of consumer durable loans. The project done in bajaj finserv explains the role of NBFCs in the consumer durable loans and the procedure undertaken in order to disburse the consumer durable loans.
Irwin, D.(.1.). & Scott, J.M.(.2.). 2010, "Barriers faced by SMEs in raising bank finance", International Journal of Entrepreneurial Behaviour and Research, vol. 16, no. 3, pp. 245-259.
The greater part of finance demand from these enterprises is in the form of debt, estimated at about INR 26 trillion. Overall demand for equity in the SME sector is INR 6.5 trillion, which makes up 20 percent of the total demand. The sector has high leverage ratios with average debt-equity ratio of 4:1. But these leverage ratios are not even across the sector and variations exist based on the size of the enterprise. For instance medium-scale enterprises exhibit a more balanced debt-equity ratio of 2:1. The unregistered enterprises, which comprise 94 percent of the SME sector, account for INR 30 trillion of the finance demand. This demand estimate does not take into account the demand for finance by unorganized
Microfinance evolved from Muhammad Yunus’s poverty alleviation strategy of microcredit – providing small non-collateral short-term loans to the poor. In short, Yunus founded the microfinance institution Grameen Bank after a successful experiment of providing loans to poor women in Bangladesh revealed the poor are capable of repaying debt obligations at a high rate and can benefit from access to credit. The high repayment rate, approximately 98% according to Yunus, meant that a commercial bank could become financially sustainable while providing loans to the poor as a method of poverty alleviation. Furthermore, access to credit provide the poor with the capability to ascent from poverty. Grameen’s rapid success lead to the popularization of microfinance’s ability to alleviate poverty and, consequently, provides valuable insights in effective microfinance business strategies,...
1.Christen, Robert Peck; Rosenberg, Richard & Jayadeva, Veena “Financial institutions with a double-bottom line: implications for the future of microfinance” (July 2004)
Despite a favourable economic environments and well-developed banking sector, microfinance is expanded significantly in Italy. Gradually, banks and public bodies are taking initiatives to start the microfinance services at the national and local level. But the progress in the microfinance sector in Italy is considered still limited even if its current economic situation requires a greater development in this area. The importance of microfinance in a country like Italy can be judged by analysing macroeconomic data: 69 percent population live in the urban area (World Bank, 2014), 28.3 percent of the people are at risk of poverty or social exclusion (Istat, 2014), 94.9 percent are microenterprises (Eurostat, 2012) and the rate of unemployment is 11.9 percent (Istat, 2016).
Furthermore, microfinance are protecting against vulnerability because the strategies of credit programme are based on sustainability. It helps to save them from falling deeper into poverty. Then, the microfinance customers can make productivity- enhancing investment through microfinance. For example, they can invest in buying sewing machine, agriculture tools, or anything that they can earn profit from it. This example is suitable for small entrepreneur, or new businessmen who want to improve their businesses. Moreover, microfinance provides long term investment services so that they can leverage their assets. Most important thing, through microfinance they can finally gain more confident to step up and involve in the communities just like other citizens around them.
SMEs globally face difficulty in accessing finance from conventional financial institutions and the International Finance Corporation and World Bank efforts at improving the finance problems of SMEs reveals that different environment face contextual finance problems requiring home-grown, tailor made strategies to manage and overcome this predicament. SMEs in the two continents find it very difficult to access loans from the banks; most credit officers lack an in-depth understanding of SMEs business cycles, and averse to lending to them. The Central Bank of Nigeria has continually encouraged banks to design special product lines aimed at meeting their financing needs, yet most commercial banks favour the big
Microcredit can be defined as small loans, or microloans, for people around the world in extreme poverty to help spur entrepreneurship. The issue of microcredit is extremely important in the world’s economy. Poverty alleviation and economic development are the primary goals of microcredit programs, that is why they began in the developing countries of Asia and Latin America, economist Muhammad Yunus and his Grameen Bank in Bangladesh are credited of pioneering this financial innovation (Smith, Thurman, 2007). After acquiring a loan, impoverished people get involved in self-employment projects that help them to start a business and begin generating income and in many cases leave poverty. Microcredit offers loans to poor people without requesting any financial history from them. These loans help to improve the quality of life of individuals and communities through commitment. In recent years, the idea of giving small loans to poor people became the darling of the development world, giving a way to propel even the poorest people into better lives (Jolis, 2011).
MFIs are indeed a source of profit for those who collect the interest rates (IPOs holders and other stakeholders, such as small banks). For that reason, it might look like that the very top of the pyramid is getting even richer on the behalf of the unfortunate bottom of the pyramid. It is also true that the interest rates are locked at their highest pick, which was a result of a global financial crisis in 2008-2009. However, we should look at these facts as the area for improvement, rather than as a reason to stop MFIs once and for
Access to capital and credit at various stages in the business life cycle is identified as the major hurdle by the entrepreneurs. For many small firms and most start-ups, the personal funds of the business owners and entrepreneur and those of relatives and acquaintances constitute as the major source of capital. For many small businesses, especially during the early years of their operation, credit is simply not available. For many others, the limited available credit is not through bank loans. Due to this many of them rely on multiple credit card balances and home equity loans as major sources of credit for start-up firm. Because banks are bound by laws and regulations to prudent lending standards that require them a risk management assessment for each loan made. These regulations were made more vigor during the late 1980'' and early 1990 . Banks always found that lending to manufacturing firm with hard asset such as property, equipment, and inventory has always been easier than lending to today's expanding service sector firms. Because the service sector firms own few hard asses, therefor lending judgment have to be based in terms of character, markets, and cashflow, which make it difficult to the bank to meet the regulations for the approval of the loan. Additional, the banking industry, as well as the entire financial sector of the
An important term that is cropping up everywhere nowadays is “Microfinance”. It is important for every person interested in the field of finance to be aware of this term, as in the coming days Microfinance is expected to be one of the brightest and the most appealing sector of the Indian Economy.