PROJECT PROPOSAL
TITLE OF THE PROJECT MICRO FINANCING – THE ROAD AHEAD
SUBMITTED TO: MR. SHREEKANT IYENGAR
SUBMITTED BY: YASH SOLANKI (55)
DATE: - 13th October, 2010
Forbes brought a special issue on microfnance in December 2007 wherein it said: "microfnance has become a buzzword o the decade, raising the provocative notion that even philanthrop aimed at alleviating povert can be proftable to institutional and individual investors!" his revolutionar and pro#poor economic activit has been recognized worldwide as an e$cient tool to combat povert, create %obs and generate income! &bove all, it has been regarded as a tool o fnancial inclusion ' that is, including masses in the progress o man(ind!
ABSTRACT In any country the house holds which are poor ace lot o constraints when it co!es to in"estin#, sa"in# and protectin# their li"elihood$ The %nancial inter!ediation ro! a third party is "ery si#ni%cant or the! and a #ood a!ount o ti!e is de"oted to %nd a considerable solution to this proble!$ There are !any low %nancial solutions a"ailable to low inco!e #roups around their local area, thou#h !ost o it char#e s&y hi#h interest rates and re'uires an asset as a !ort#a#e$ (ut !any a!ilies who do not own personal property cannot access this route$ The !icro %nance sector tryin# to !atch the con"enience and )e*ibility o inor!al sector which is un!atched by the or!al sector$ The &ey +!antra+ o 10+s and 10+s wo!en , #roups , #raduation , !icro enterprises and !icro credit are now !a&in# way or con"enient , reliable , continuous and )e*ible ran#e o ser"ices in the new century $ In !y study I a! doin# detailed analysin# o the current !icro %nancin# sector in India and co!parin# Indian !icro %nancin# with the best practices o the world$
INTRODUCTION Accordin# to .a#a /enu#opal eddy, India and the lobal inancial risis: 4ana#in# 4oney and inance 5167 8 )ince the earl national plans, independent *ndia+s government has emphasized the lin( between improving access to fnancial mar(ets and reducing povert, a stance that has had inuence globall! he earl strateg gave the lead role to state#run ban(s, who were charged with loosening the grip o traditional inormal#sector monelenders through the use o targeted low#priced loans- There are newer approaches in India li&e which includes partial dere#ulation o interest rates, new cooperati"es with an institutional or! which ha"e a ocus on inter!ediatin# their own !e!bers opportunities$ The users o !icro %nancin# now !ainly includes s!all scale ar!ers who need %nancial support or irri#ation, crop culti"ation and #rowin# li"e stoc&$ In 10+s there was a #radual shit to %nancin# wo!en, who ca!e orward to a"ail the %nancial opportunities with the help o sel help #roups$ Earlier the !en were the !ain beneactors$ 9ow a typical bene%ciary o !icro %nancin# is de%ned as either !en or wo!en ro! poor house holds who see& a "ariety o sa"in#s and %nancial ser"ices or a di"erse set o consu!ption acti"ities$ ince independence, "arious #o"ern!ents in India ha"e e*peri!ented with a lar#e nu!ber o #rant and subsidy based po"erty alle"iation pro#ra!!es$ These pro#ra!!es were based on #rant;subsidy and the credit lin&a#e was throu#h co!!ercial ban&s only$ As a result, these pro#ra!!es beca!e unsustainable, perpetuated a dependant status on the bene%ciaries and depended ulti!ately on the #o"t$ e!ployees or deli"ery$ This not only led to !isuse o both credit and subsidy but ban&s ne"er loo&ed at it as a pro%table and co!!ercial acti"ity as well$ hilippines etc, #a"e urther boost to the concept in India in the 10s$ India thus adopted the si!ilar !odel o e*tendin# credit to the poorest sector and too& a no$ o steps to pro!ote !icro-%nancin# in the country$
MICRO FINANCE DEFINED Accordin# to obinson 520017 8 micro fnance as small#scale fnancial services.primaril credit and savings.provided to people who arm, fsh or herd- and adds that it reers to all tpes o fnancial services provided to low# income households and enterprises 8 ood 4icro inance Micr!"#"c$ is the pro"ision o %nancial ser"ices to low-inco!e clients, includin# consu!ers and the sel-e!ployed, who traditionally lac& access to ban&in# and related ser"ices$ 4ore broadly, it is a !o"e!ent whose ob?ect is @a world in which as !any poor and near-poor households as possible ha"e per!anent access to an appropriate ran#e o hi#h 'uality %nancial ser"ices, includin# not ?ust credit but also sa"in#s, insurance, and und transers$@ Those who pro!ote !icro%nance #enerally belie"e that such access will help poor people out o po"erty$
THE FINANCIAL OUT LOOK OF POOR The poor household consider the %nancial inter!ediation as a day to day acti"ity not as a reward or pri"ile#e or bein# en#a#ed in certain beha"iour $ They loo& at the %nancial pro"iders as partners at wor& not as patrons$ They ha"e no #ender barriers when it co!es to a"ailin# the %nance, or does not see& to in"est only in !icro %nance$ They e*pect that the %nancial inter!ediation should not only co!e throu#h a #roup but to indi"iduals and not part o any social de"elop!ent pro?ects$ They also do not see& to obtain the %nance ro! only one partner but are used to a "ariety o !ultiple portolios$
MICRO FINANCING IN INDIA The understandin# o India+s econo!y , #rowin# #ap between the rich and poor , and the #rowth will help to !a&e a reasonable discussion on
co!!ercial !icro %nancin# and the i!pact o !icro %nance sector in rural India$
ECONOMY India is ho!e to !ore than 1$3 billion people in 200 and constitutes one si*th o the world population$ India has worlds lar#est de!ocracy and an e!er#in# econo!ic super power$ The countries #rowth is also stron# with real D> e*pected to #row around $3 B in 2010$ The situation in India is that the wealth which is created increasin#ly is not a"ailed by all citiCens$ The !icro %nancin# is one pro#ressi"e approach or the poor people to achie"e i!pro"e!ent in li"elihood, which is also the #oal o national and international co!!unities, so that they #et so!e bene%t o the countries #rowth$
PO%ERTY In order to analyse the costs and bene%t o !icro %nancin# includes understandin# the en"iron!ent where they li"e$ The !ain purpose and !oti"e behind the !icro %nancin# is po"erty reduction $4ore than 'uarter o the population in India is below po"erty line$ There are si#ni%cant disparity between the rich and poor as the wealth is concentratin# !ore on corporate sector$ The #o"ern!ent o Indias po"erty reduction strate#y concentrates on i!pro"in# inrastructure, social de"elop!ent and rural li"elihood$
LITERATURE RE%IE& Accordin# to 4orduch The Econo!ics o 4icro %nance 2000 8 hree /uestions have ta(en important place in academic discussions while tal(ing about micro#fnance! he frst /uestion is whether micro#Finance a phenomenon o rural societ 1hen we tal( about micro#fnance, the popular perception is that it is a phenomenon o rural societ! he second /uestion is whether micro#fnance a phenomenon o developing countries he third /uestion is whether micro#fnance an industr o social sector 8 Accordin# to hristen et al$, 517$ 84icro fnance has eisted, although mostl in the shadows and unseen b casual observers, since the rise o ormal fnancial sstems, and indeed probabl pre#dates them! *t has onl been within the last our decades, however, that serious global e3orts have been made to ormalize fnancial service provision to the poor! his process began in earnest around the earl to mid#4560s and has since gathered an impressive momentum! oda there are thousands o F*s providing fnancial services to an estimated 400 # 200 million o the world+s poor 8 The e"olution and rise o !icro %nance industry is a re!ar&able achie"e!ent in the eradication o po"erty$ It has shown that eradicatin# po"erty throu#h sel %nancin# the poor and e"en turnin# a pro%t out o it is possible$ The interest o scholars has always la##ed behind the de"elop!ent o !icro %nance sector$ There is "ery little publication o scholarly articles about !icro %nancin#$ Accordin# to 4orduch 520007 8 unli(e ormal sector fnancial institutions, the large ma%orit o F*s are not "sustainable," where sustainabilit is e/uated in micro fnance literature and parlance with fnancial sel#su$cienc!8 *nstead, most F*s are able to operate without covering their costs due to subsidies and gits rom governments and other donors! 9otwithstanding, the micro fnance industr is dominated b an institutionalise paradigm 8 Accordin# to 9ourse 520017, oller 52002a7 84Is provide similar products and services to their customers as ormal sector fnancial institutions! he scale and method o deliver di3er, but the undamental services o savings, loans, and insurance are the same! 9otwithstanding, to date most e3orts to ormalize micro fnance have ocused on enterprise lending loans or enterprise ormation and development; which remain b ar toda the dominant product o3ered b F*s! his, however, has slowl begun to
change! *ncreasingl toda F*s have begun to o3er additional products, such as savings, consumption or emergenc loans, insurance, and business education!F
Accordin# to hauhan 11 8beore we understand the concept o micro# fnance, it would be worthwhile to understand the term micro#credit as the two terms are closel related to each other! ne is ormal fnancial institutions, ban(s and co#operatives, which provide micro#credit to the poor people under di3erent schemes or livelihood support or helping them to start micro#enterprises! he other is inormal sstem comprising traditional monelenders, pawnbro(ers and trade specifc lenders! ?oth the sstems have their own positive and negative aspects-!
RESEARCH METHODOLOGY The tools that are used or studyin# the !icro %nance or#aniCations are !ainly sa!e as that used or studyin# the co!!ercial ban&s$ This is because !ost o the 4I ha"e now turned to wor& with the structure o a co!!ercial ban&$
PRIMARY RESEARCH The pri!ary research has ollowin# co!ponents • • • •
I"'$ri$ *+$,'i""#ir$, P#r'ici-#"' O,$r#'i" N"/P#r'ici-#"' O,$r#'i"
In this research the pri!ary research will be conducted throu#h inter"iews with the bene%ciaries o the !icro %nancin# and with &ey personnel in the %eld$ There will be !inor a!ount o non-participant obser"ation where the acts and %#ures collected are obser"ed or reliability and "alidity$ Ad"anta#es The personal inter"iews will result in ewer reusal o response and ha"e !ore "alidity$ e can also obtain #ood 'ualitati"e data ro! s!all sa!ple$
SECONDARY RESEARCH The data base or!ed usin# published reports 5%nancial7, ?ournals on the concerned sub?ect, websites and direct en'uiry $ inancial analyses o the so!e 4I are done usin# nor!al ratio and other %nancial analysis techni'ues$ Thou#h !ost o the study is structured in a 'ualitati"e !anner suGcient 'uantitati"e data are pro"ided to support the 'ualitati"e hypothesis$
TIMELINE H 4onths
BENEFECIARIES • • •
inancial institutions (an&s >eople who want !icro-%nance
TENTATI%E CONTENTS • • • • • • • • • • •
Introduction to 4icro %nance$ E"olution o 4icro %nance$ hat is 4icro inance 4icro inance in India 4icro %nance- !odels, initiati"es = institutes$ OT Analysis o 4icro %nance$ hallen#es$ riticis!s uture o 4icro %nance$ onclusion$ eerences$
BIBLIOGRAPHY • • • • • • • • •
www$i!r$ac$in www$#oo#le$co! www$!icro%nanceinsi#ht$co! www$in"estopedia$co! www$boo&s$#oo#le$co! www$thaindian$co! www$authorstrea!$co! www$&nowled#e$allianC$co! www$india!icro%nance$co!
