Micro Finance Institutions

MFIs, SHGs and NGOs

1. Ag.Econ 509-Agricultural finance and project management(2+1) MFIs-SHGs and NGOs

2. Meaning Microfinance: Microfinance is the supply of loans, savings, and other basic financial services to poor. Micro finance institutions: It is an organization that offer financial services, ranging from small non profit organisation to large commercial banks.

3. ORIGION The micro finance programme first initiated in the year 1976 in Bangladesh . Microfinance combines the strengths of both formal and informal systems of purveying credit. Informal system - chit funds - immemorial. Formal system - cooperative movement in India

4. The positive aspects of formal financial system are that under this system, micro-credit is available at low rate of interest with easy and periodical repayments and moratorium (Existing only for period of time) period. The most important aspect of this type of credit is that it is available for income generating activities .

5. The same time micro-credit from formal financial system is not easily available, the system requires collateral or security. It has complex, legal and operational procedures , involving lot of paper work. Since the process of credit disbursement is time consuming, many times credit is not available when required.

6. WHO REGULATES MFI’S IN INDIA MFI’S Primary representative body and self regulatory organization(SRO) for Non banking finance companies (NBFC) MFI’S regulated by RBI .

7. CONCEPT AND FEATUTES The microfinance is primarily based on the principles of co-operation namely, mutual help, democratic functioning. It is tool for empowerment of poorest . Delivery is through Self help groups . It is essentially for promoting self employment. Tool for social change , specially for women.

8. The emergence of microfinance's prime objective is to bridge the gap between demand and supply of funds in the lower rungs of the rural economy. The formal sector took the initiative to develop a supplementary credit delivery mechanism by encouraging institutional arrangements outside the financial system with the launching of NABARD's pilot scheme. Microfinance to cure the illness of rural poverty gained visibility on the India development landscape.

9. MFI’S –FORMAL SYSTEM The following are the major support institutions in India. NABARD - National Bank for Agriculture and Rural Development Rashtriya Mahila Kosh SIDBI - Small Industries Development Bank of India Tamil Nadu Women's Development Corporation

10. Rastriya Mahila Kosh(RMK) RMK established in march 1993 –Autonomous body under MoWCD . RMK provide loan to NGOs- MFIs termed as intermediate organization which on lend to SHGs on women Loan scheme for RMK: Loan promotion scheme Main loan scheme Gold credit scheme Housing loan scheme Working capital term loan Repeat loan scheme

11. Scheme Eligibility Total amount Loan promotion scheme 6 months (Thrift & credit) Max 10 lacks Main loan scheme Min 3 year 2 crore per state (3 state) Gold credit scheme Bulk loan to NGOs Max 5 Crores Housing loan scheme NGOs & IMOs Max 1 lacks Working capital term loan Based on the purpose 50 lacks – no security 50 lacks to 1 crores - 10%of margin to be fixed deposit Repeat loan scheme NGOs / IMOs must have repaid 80% of previous loan without any break

12. Small Industry Development Bank of India SIDBI established 2 April -1990,Luknow. It is primary Financial Institution for promoting Developing and financing MSME( Micro,Small and Medium Enterprises) sectors. Financial Facilites Offered by SIDBI : Direct Finance Indirect Finance Micro Finance

13. HOW TO APPLY FOR LOAN Recognized consultant prepare the Basic Information Memorandum(BIM) Then submit BIM to SIDBI In case required, the proposal rated by rating agency which is approved by RBI. Other cases application for the loan submitted to PSB.SIDBI has MoU with PSBs.

14. GOAL FOR MFI’S To improve the quality of life of the poor by providing access to financial and support services. To mobilize resource in order to provide financial and support services to poor, particularly woman, for viable productive income generation enterprises enabling them to reduce their poverty. Learn and evaluate what helps people to move out of poverty faster.

15. To create opportunity for self employment. To train rural poor in simple skills and enable them to utilize the available resources and contribute to employment and income generation in rural areas.

16. Self Help Groups(SHGs) SHGs is a small group of rural poor , who have voluntarily come forward to form a group of improvement of the social and economics status of the members. SHGs also know as mutual help, mutual aid , and support groups. SHGs function on the basis of co operative principal. Every members to save small amounts regularly.

17. SHGs have been able to mobilize small saving either on weekly or monthly basis from person who were not expected to have any saving. They have been able to effectively recycle the resources generated among the members for meeting the emergent credit needs of members of the group.

18. CONDITION Members should be between the age group 21-60 years. Members should be homogenous (same social and financial background) From , one family one person become a member member of an SHG. The group normally consist of either only men or only women. Members should be rural poor .

19. NEED OF SHGs The very existence of SHGs highly relevant to make the people of below poverty line hopeful and self-relient. SHGs enable them to increase their Income, standard of living and status in society. It act as the catalyst for bringing this section of society to the main stream.

20. GOVERNMENT INITIATIVES In the year 1992 , the National Bank for Agriculture and Rural Development (NABARD ) introduced pilot project for linking 500 Self-Help Groups (SHGs) with banks, after thorough discussions with the RBI, commercial banks and non-governmental organizations (NGOs). During the ninth plan(1997-2000) emphasis participation of women in the planning process and promotion of self help groups .

21. Among the various programmes SGSY is an important one .this programme was launched on 1 April,1999 at 75:25 costs sharing between central and state governments. The main objectives of the programme to bring beneficiaries above the poverty line by providing income generating assets to them through bank credit and subsidy. SHGs are the major components of this scheme.

22. Three stages of evolution: Group formation Capital formation Skill development and taking up economic activity for income generation.

23. TYPES OF SHG-BANK LINKAGE MODEL Bank s forms SHGs and finance them NGOs forms SHGs and bank finance them NGOs and other agencies, as financing intermediaries between bank and SHGs.

24. NABARD gives 100 per cent refinance under SHG linkage programme at an interest rate of 6.5 per cent to banks. The interest rate structure stipulated by NABARD under linkage programme is as NABARD to banks (Refinance) : 6.5 % per annum Bank to SHGs : 12 % p.a. + interest + tax Bank to NGOs : 10.5 % p.a. + interest + tax NGOs to SHGs : 12 % p.a. + interest + tax SHG to members : As decided by SHG

25. Objectives To inculcate saving and banking habit among members. To secure them from financial, technical and moral strength. To enable availing of loan for productive purposes. To gain economic prosperity through loan/credit. To gain from collective wisdom in organizing and managing their own finance & distribute the benefits among themselves.

26. To create group feeling among women. To enhance confidence and capabilities of women. To develop collective decision making among women. To motivate women taking up social responsibilities. Its act as a forum for members to provide space and support to each others .

27. Non Governmental Organisation(NGOs) NGOs or Voluntary Agencies or Voluntary organisation committed for the uplifting of poor. NGOs are flexible in their operation, independent in its functioning, quick decision making people concerned driven by social value and humanitarian principles .

28. NGOs NGO also called NPO (Non Profit Organisation) The term NGO is first coined in 1945 ,when the united nations was created.

29. Census The number of NGOs world wide estimated to be 10 million . Russia had about 2,77,000 NGOs in 2008 . India had around 2 million NGOs in 2009 , just over one NGO per 600 Indians . China - 4,44,000 US - 1.5 million

30. TYPES OF NGOs Based on the orientation: Charitable Service Participatory Empowerment Based on the level of cooperation: Community based City wide organization National International

31. ROLE OF NGOs To motivate rural people to organize themselves and form into SHGs . To educate, train the group members managing activities like maintenance of book accounts, conducting meeting, etc To help SHGs in identifying raw materials and local resources.

32. To educate group members to upgrade their skills and technology to make best use resources. To make available credit facilities and to act link between rural poor and the bank. To work facilitator in the meeting of SHGs To act as a friend, philosopher, and guide to SHGs

33. THANK YOU By Hemagandhi S( M.Sc-Agr Economics)