Microfinance its revenue models Presented By: LAKSHMI SHARMA UTKARSHA SINGH GOVIND BHAGAT

Agenda Scenario of Micro Finance in India. Micro-Credits model. Business model of Grameen Bank Self Help Groups (SHG’s). Difference between JLGs and SHGs NABARD initiatives in Micro finance. SWOT Analysis of Micro Finance Future of Micro Finance Conclusion

Scenario of Micro Finance in India India’s population is more than 1000 million, around 350 million, are living below the poverty. Only 20% access loan from the formal sources and 80% from the informal sources. Out of that 20% only 10% have access to Micro finance. Annual credit demand by the poor is estimated to be about Rs 60,000 crores. And only 12,000 crores are disbursed. (April 09) Customers of Micro Finance are “Small and marginal farmers", " rural artisans" and "economically weaker sections“

REVENUE MODELS Revenue models can be based on a combination of joining fees, commission fees for both borrowers and lenders for every loan, or commission on monthly repayments. Additional revenues can come from donations, sponsoring partners and advertisers. Many microcredit models use a system of peer support and pressure where borrowers are responsible for each other's success to ensure that every member of their group is able to pay back the loans.  

Business model of GRAMEEN bank Introduction The Grameen Bank started in 1976 by the Nobel Laureate, Professor Muhammad Yunus in Bangladesh . Grameen today has some 2,468 branches in Bangladesh, with a staff of 24,703 people serving 7.34 million borrowers from 80,257 villages. Grameen‘s methods are applied in 58 countries — including the United States. Grameen Bank borrowers own 94% of the Bank. The remaining 6% are owned by the government. (January 09) Working model of Grameen bank: Manager first makes a round to the appointed area to introduce Grameen policies and programs. Try to make the group of 5 people.

Conti…. Two popular scheme by Grameen Bank is:- Only two members can obtain loan at first. After 6 weeks of successful repayment another two can apply for loan. The leader can only receive loan at last. Repayment responsibility solely rests on the individual borrower. However if one member of a group defaults, that group will never receive a loan from Grameen Two popular scheme by Grameen Bank is:- Loan Insurance:- Beggars Loan:- The Repayment Mechanism: One year loan . Equal weekly installments . Repayment starts one week after the loan . Repayment amounts to 2% per week for fifty weeks . Criticism of Grameen Bank: There are rumors that there repayment rate are fake. Grameen Bank clients used their loans for many different purpose .e.g..Dowry, gambling etc.

The Self Help Group (SGH) SHGs is a small group of rural poor, who have voluntarily come forward to form a group for improvement of the social and economic status of the members. Homogeneous group of about 15 to 20. Every member to save small amounts regularly. Every member learns prioritization and financial discipline. Condition required for membership for SHG’s Members should be between the age group of 21-60 years. From one family, only one person can become a member of an SHG. (More families can join SHGs this way). The group normally consists of either only men or only women. Members should be homogenous i.e. should have the same social and financial background. Members should be rural poor.

Difference between JLGs and SHGs “Joint Liability Group (JLG) is a group of individuals coming together to borrow from the financial institution. Sources :Survey on SAKHI SHGs (Self Help Groups) JLGs (Joint Liability Groups) Minimum 15 members and maximum 20.   Minimum 3 members and maximum 5. Meeting is compulsory. No necessary of compulsory meeting. Bank loan is available. They get loans only from MFIs. Gets the benefit of government scheme. Individual responsibility There is no benefit. They share responsibility and stand as guarantee for each other.

NABARD initiatives in Micro finance National Bank for Agriculture and Rural Development (NABARD) was established as an apex rural development bank in the year 1982, through an Act of Parliament. Role and Function of NABARD: Providing Refinance to lending institutions in rural areas. Evaluating, monitoring and inspecting the client banks. Providing support to NGOs through a variety of schemes. Making model projects / development schemes for banks and farmers It prepares, on annual basis, rural credit plans for all districts in the country.  

Organizational structure Head Office Dept (24)

Financial Santa Clause (NABARD) (NABARD) was established in 1982,with an initial capital of 1400 crores. And till March 30, 09 it reached to Rs 1, 00,000 crores with the surplus of Rs 1400 crores. Its Reserve and Surplus increased by 10.26% from 07 to 08, and its Cash and Bank balance and Investment increased by 40.16% and 15.5%. (sources :nabard.org) From where NABARD gets the fund? How NABARD gives loan to the Institutions? NABARD follows the very strange way of providing the loans. They give loans to the every ODD number institution i.e.3, 5, 7, 9….

How NABARD manage their repayment structure? Their Repayment ratio is more than 95%. NABARD see the credit rating of that institute given by the rating agency. NABARD analyze the balance sheet and profit and loss statement of the borrowing institutes. NABARD sees the past record of the borrowing institutes, their repayment ratio and the executives who are working in that institutes.

MFI’s being criticized because of high interest rates: Most MFI’s financially sustainable by charging interest rates that are high enough to cover all their costs. Four key factors determine these rates: The cost of funds. The MFI's operating expenses. Loan losses. And profits needed to expand their capital base and fund expected future growth. There are three kinds of costs the MFI has to cover when it makes microloans: The cost of the money that it lends. The cost of loan defaults. Transaction and Operating cost.

SWOT Analysis of micro finance Strength Helped in reducing the poverty. Huge networking available. Weakness Not properly regulated. High number of people access to informal sources of finance. Concentrating on few people only and mainly in urban areas. Opportunity Huge demand and supply gap. Employment Opportunity. Huge Untapped Market. Opportunity for Pvt. Banks, NBFCs, Foreign Banks to enter this business segment. Threat High Competition. Over involvement of Govt.

Future of Micro Finance Estimated that in next five years, 65% of the poor people will have excess to MFIs. Many Pvt. Banks and Foreign Banks would enter this business segment, because of very low NPAs. Estimated that 5 % of the number of people below the poverty line will get reduced in the next 5 years.(World Bank report)

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