ROJECT REPORT ON

A STUDY OF IMPACT OF MICROFINANCE

ON WOMEN EMPOWERMENT

A PROJECT SUBMITTED TO
UNIVERSITY OF MUMBAI FOR PARTIAL COMPLETION OF
THEDEGREE OF
MASTERS IN COMMERECE

(M.COM)

UNDERTHEFACULTY OF COMMERCE

BY:

JYOTI DINESH PANDEY

Roll No: - 17

Under Guidance of

PROF. KUMKUM GURBANI

J.WATUMALL SADHUBELLA GIRLS

COLLEGEULHASNAGAR – 421 001

University of Mumbai

SEMESTER- IV

2021-22
 SADHUBELLA EDUCATION SOCIETY’S
(Minority Institute)
J. WATUMULL SADHUBELLA GIRLS COLLEGE,
Near Government Dispensary, Ulhasnagar-421001
------------------------------------------------------------------------------------------------------------------------

CERTIFICATE

This is to certify that MS. JYOTI DINESH PANDEY has worked and duly
completed her Project Work for the degree of Masters in Commerce under the
Faculty of Commerce in the subject of “ACCOUNTANCY” and her

Project entitled, “A STUDY OF IMPACT OF MICROFINANCE ON WOMEN

EMPOWERMENT” under mysupervision.

I further certify that the entire work has been done by the learner under my guidance and
that no part of it has been submitted previously for any Degree or Diploma of any
university.

It is her own work and facts reported by her personal findings and investigation.

PROF. KUMKUM GURBANI

(External Examiner)

Date of submission: 21/04/2022

DR. VASANT PANDIT P. MALI

(PRINCIPAL)
 DECLARATION

I the undersigned MS. JYOTI DINESH PANDEY hereby declare that the work
embodied in this project work titled "A STUDY OF IMPACT OF MICROFINANCE
ON WOMEN EMPOWERMENT" forms my own contribution to the research work
carried out under the guidance of PROF. KUMKUM GURBANI” is a result of my own
research work and has not been previously submitted to any other university for any
other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this documents has been obtained and
presented in accordance with academic rules and ethical conduct.

(JYOTI DINESH PANDEY)

Certified by

(Prof. KUMKUM A. GURBANI)

 ACKNOWLEDGMENT

To list who all have helped me is difficult because they are so numerous and the depth

is so enormous.

I would like to acknowledge the following s being idealistic channels and fresh

dimension in the completion of this project.

I take this opportunity of thank the University of Mumbai for giving me chance to

do this project.

I would like to thank my Principal, DR. VASANAT PANDIT MALI for providing the

necessary facilities required for completion of this project.

I would like to thankour Coordinator PROF. SHARMILA KARVE for her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide

PROF. KUMKUM GURBANI whose guidance and care made the project
successful.

I would like to thank my College Library, for having provided various reference

books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped

me in the completion of the project especially my parents and peers who supported me
throughout my project.
 ABSTRACT:

The capital market in emerging economies like India has exhibited a strong growth
momentum, driven by a robust economic demand, consumption and savings rate. The
history of Indian capital market dates back to the eighteenth century with East India
Company. In early 1990’s, India figured low in global ranking of the state of capital
markets. The reforms, adoption of sophisticated IT tools in trading mechanism has placed
India in lead. The establishment of screen based trading; shorter settlement periods,
dematerialization and derivatives have been other major developments. But with the
global integration the widening and intensifying of links between high income
developing countries, which have accelerated over years. The capital market also poses
major challenges as of taming derivatives, regulatory overhang, the demise of proprietary
trading, sustained volatility and increased concentration etc. So there is a requirement for
further development in Capital Market.

Keywords: Capital Market, online trading.

 INDEX

Index
CHAPTER NO PARTICULARS PAGE
NO

1. INTRODUCTION 1-46

2. RESEARCH METHODOLOGY 48-49

3. LITERATURE REVIEW 50-57

4. DATA ANALYSIS INTERPERATION 58-84

AND SUGGESTIONS

5. CONCLUSION 85

6 BIBLOGRAPY 87

7 APPENDIX 88-91

2
 CHAPTER I
INTRODUCTION
Microfinance is defined as any activity that includes the provision of financial services such
as credit, savings, and insurance to low income individuals which fall just above the
nationally defined poverty line, and poor individuals which fall below that poverty line, with
the goal of creating social value. The creation of social value includes poverty alleviation and
the broader impact of improving livelihood opportunities through the provision of capital for
micro enterprise, and insurance and savings for risk mitigation and consumption smoothing.
A large variety of sectors provide microfinance in India, using a range of microfinance
delivery methods. Since many banks in India, various actors have endeavored to provide
access to financial services to the poor in creative ways. Governments also have piloted
national programs, NGOs have undertaken the activity of raising donor funds for on-lending,
and some banks have partnered with public organizations or made small inroads themselves
in providing such services. This has resulted in a rather broad definition of microfinance as
any activity that targets poor and low-income individuals for the provision of financial
services. The range of activities undertaken in microfinance include group lending, individual
lending, the provision of savings and insurance, capacity building, and agricultural business
development services.
The two main mechanisms for the delivery of financial services to such clients are: (1)
Relationship-based banking for individual entrepreneurs and small businesses and (2) Group-
based models, where several entrepreneurs come together to apply for loans and other
services as a group. Microfinance is a movement whose object is “a world in which as many
poor and near poor households as possible have permanent access to an appropriate range of
high quality financial services, including not just credit but also savings, insurance and fund
transfers”. Many of those who promote microfinance generally believe that such access will
help poor people out of poverty. Microfinance is a way to promote economic development,
employment and growth through the support of micro-entrepreneurs and small business.In
India, the trickle down effects of macroeconomic policies have failed to resolve the problem
of gender inequality. Women have been the vulnerable section of society and constitute a
sizeable segment of the poverty-struck population. Women face gender specific barriers to
access education health, employment etc. Micro finance deals with women below the poverty
line. Micro loans are available solely and entirely to this target group of women. There are
several reason for this: Among the poor, the poor women are most disadvantaged- they are

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characterized by lack of education and access of resources, both of which is 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. This is due to the low social status and lack of
access to key resources. Evidence shows that groups of women are better customers than
men, the better managers of resources. If loans are routed through women benefits of loans
are spread wider among the household.By extending small loans to poor individuals,
microcredit enables its borrowers to take up income-earning activities that lead to a series of
improvements in their economic situation. In addition to the improved income-earning
ability, microcredit has increasingly promoted for its positive impact on empowerment,
especially for women’s empowerment by enabling poor women to earn an independent
income and contribute financially to their household. This is supposed to give women greater
power within the household. Also, microcredit is seen as a tool in enabling women to free
themselves from household confines and get exposure to the outside community. The
exposure to the outside community, together with the formation of networks with other
women, is expected to lead to greater self-confidence and courage. However, there is no real
consensus among academics on women’s empowerment. Microcredit has a role in increasing
female borrower’s income-earning ability, leading to stronger decision-making power and
ability to overcome gender-related constraints.
FEATURES OF MICRO-FINANCE
The term micro finance is of recent origin and is commonly used in addressing issues related
to poverty alleviation, financial support to micro entrepreneurs, gender development etc.
There is, however, no statutory definition of micro finance. The taskforce on supportitative
policy and Regulatory Framework for Microfinance has defined microfinance as “Provision
of thrift, credit and other financial services and products of very small amounts to the poor in
rural, semi-urban or urban areas for enabling them to raise their income levels and improve
living standards”. The term “Micro” literally means “small”. But the task force has not
defined any amount. However as per Micro Credit Special Cell of the Reserve Bank Of India
, the borrowable amounts up to the limit of Rs.25000/- could be considered as micro credit
products and this amount could be gradually increased up to Rs.40000/- over a period of time
which roughly equals to $500 – a standard for South Asia as per international perceptions.
The term micro finance sometimes is used interchangeably with the term micro credit.
However while micro credit refers to purveyance of loans in small quantities, the term

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microfinance has a broader meaning covering in its ambit other financial services like saving,
insurance etc. as well.The mantra “Microfinance” is banking through groups. The essential
features of the approach are to provide financial services through the groups of individuals,
formed either in joint liability or co-obligation mode. The other dimensions of the
microfinance approach are:
1. It is a tool for empowerment of the poorest.
2. Delivery is normally through Self Help Groups (SHGs).
3. It is essentially for promoting self-employment, generally used for:
(a) Direct income generation
(b) Rearrangement of assets and liabilities for the household to participate in
future opportunities and
(c) Consumption smoothing.
4. It is not just a financing system, but a tool for social change, especially for women.
5. Because micro credit is aimed at the poorest, micro-finance lending technology needs
to mimic the informal lenders rather than the formal sector lending. It has to:
(a) Provide for seasonality
(b) Allow repayment flexibility
(c) Fix a ceiling on loan sizes.

THE ORIGIN OF MICROFINANCE

Although neither of the terms microcredit or microfinance were used in the academic
literature nor by development aid practitioners before the 1980s or 1990s, respectively, 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). In
1720 the first loan fund targeting poor people was founded in Ireland by the author Jonathan
Swift. After a special law was passed in 1823, which allowed charity institutions to become
formal financial intermediaries a loan fund board was established in 1836 and a big boom
was initiated. Their outreach peaked just before the government introduced a cap on interest
rates in 1843. At this time, they provided financial services to almost 20% of Irish
households. The credit cooperatives created in Germany in 1847 by Friedrich Wilhelm
Raiffeisen served 1.4 million people by 1910. He stated that the main objectives of these

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cooperatives “should be to control the use made of money for economic improvements, and
to improve the moral and physical values of people and also, their will to act by themselves.”
In the 1880s the British controlled government of Madras in South India, tried to use the
German experience to address poverty which resulted in more than nine million poor Indians
belonging to credit cooperatives by 1946. During this same time the Dutch colonial
administrators constructed a cooperative rural banking system in Indonesia based on the
Raiffeisen model which eventually became Bank Rakyat Indonesia (BRI), now known as the
largest MFI in the world.
EVOLUTION OF MICROFINANCE IN INDIA (1960 TO 2012)
Microfinance in India emerged as an effort to reach out to the un-banked, lower income
segments of the population
1960 to 1980 1990 2012
Phase 1: Social Banking Phase 2: Financial Systems Phase 3: Financial Inclusion
Approach
1.Nationalization of private 1.Peer-pressure 1.NGO-MFIs and SHGs
commercial banks gaining more legitimacy
2.Expansion of rural branch 2.Establishment of MFIs, 2.MFIs emerging as strategic
network typically of non-profit partners to diverse entities
origins interested in the low-income
segments
3.Extension of subsidized 3.Consumer finance emerged
credit as high growth area

4.Establishment of Rural 4.Increased policy regulation

Regional Banks
5.Establishment of apex 5.Increasing
institutions such as National commercialization
Bank for Agriculture and
Rural Development and
Small Industries
Development Bank of India

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Phase 1: In the 1960’s, the credit delivery system in rural India was largely dominated by the
cooperative segment. The period between 1960 and 1990, referred to as the “social banking”
phase. This phase includes nationalization of private commercial banks, expansion of rural
branch networks, extension of subsidized credit, establishment of Regional Rural Banks
(RRBs) and the establishment of apex institutions such as the National Bank for Agriculture
and Rural Development (NABARD) and the Small scale Industries Development Board of
India (SIDBI).

Phase 2: After 1990, India witnessed the second phase “financial system approach” of credit
delivery. In this phase NABARD initiated the Self Help Group (SHG) - Bank Linkage Bank
Linkage program, which links informal women's groups to formal banks. This concept held
great appeal for non-government organizations (NGOs) working with the poor, prompting
many of them to collaborate with NABARD in the program. This period also witnessed the
entry of Microfinance Institutions (MFIs), largely of non-profit origins, with existing
development programs.

Phase 3: In 2012, the third phase in the development of Indian microfinance began, marked
by further changes in policies, operating formats, and stakeholder orientations in the financial
services space. This phase emphasizes on “inclusive growth” and “financial inclusion.” This
period also saw many NGO-MFIs transform into regulated legal formats such as Non-
Banking Finance Companies (NBFCs). Commercial banks adopted innovative ways of
partnering with NGO-MFIs and other rural organizations to extend their reach into rural
markets. MFIs have emerged as strategic partners to individuals and entities interested in
reaching out to India's low income client segments.
POLICY ATTENTION TO MICROFINANCE

1999 --- Official definition of microfinance by RBI

August 2000 --- 'Micro Credit/Rural Credit' included in the list of permitted non-banking
financial company (NBFC) activities considered for Foreign Direct Investment (FDI)

2005 --- MFIs acknowledged for the first time in the Budget Speech by the Finance Minister
“Government intends to promote MFIs in a big way. The way forward, I believe, is to
identify MFIs, classify and rate such institutions, and empower them to intermediate between
the lending banks and the beneficiaries.”

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January 2006 --- Announcement of the business correspondent model

February 2006 --- Budget Speech by the Finance Minister promises a formal statutory
framework for the promotion, development and regulation of the microfinance sector

March 2006 --- Comprehensive guidelines by RBI on loan securitization

July 2006 --- RBI master circular allows NGOs involved in microfinance to access External
Commercial Borrowings (ECB) up to USD 5 million (INR 20.25 crores) during a year.

March 2007 --- Finance Minister introduces the “Micro Finance Sector Development and
Regulation Bill 2007” in LokSabha

MICROFINANCE HISTORICAL BACKGROUND We

can trace the origin of the concept of Microfinance in Bangladesh.
(1)Micro-Finance Institutes of Bangladesh
Bangladesh has been acknowledged as a pioneer in the field of microfinance. Dr.Muhammad
Yunus, Professor of Economics in Chitgaon University of Bangladesh, was an initiator of an
action research project “Grameen Bank". The project started in 1976 and it was formally
recognized as a bank through an ordinance, issued by the government in 1993. Even then it
does not have a scheduled status from the Central bank of the country, the Bangladesh Bank.
The Grameen Bank provides loans to the landless poor, particularly women, to promote self-
employment. At the end of December 2001, it had membership of 23.78 lakh and cumulative
micro-credit disbursements of TK 14.653 crore.
Bangladesh Rural Advancement Committee (BRAC), Association for Social
Advancement (ASA) and PROSHIKA are the other principal Micro-Credit Finance
Institutions (MFI’s) operating for over two decades and their activities are spread in all the
districts of that country. Initially set up in 1972 as a relief organization, it now addresses the
issues of poverty alleviation and empowerment of poor, especially women, in the rural areas
of the country. This institute also works in the field of literacy, legal education and human
rights. BRAC has worker significantly in the fields of education, health, nutrition and other
support services. PROSHIKA is also active in the areas of literacy, environment, health and
organization building, while ASA and Grameen Bank are pure MFI’s.
(2) Indian Scenario

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India has adopted the Bangladesh’s model in a modified form. To alleviate the poverty and to
empower the women, the micro-finance has emerged as a powerful instrument in the new
economy. With availability of microfinance, self-help groups (SHG’s) and credit
management groups have also started in India. And thus the movement of SHG has spread
out in India. In India, banks are the predominant agency for delivery of micro-credit. In 1970,
Iiaben Bhat, founder member of “SEWA” (self employed women’s association) in
Ahmadabad, had developed a concept of “women and microfinance”. The “Annapurna
Mahila Mandal” in Maharashtra and “Working Women’s Forum” in Tamilnadu and many
National Banks for Agriculture and Rural Development (NABARD) sponsored groups have
followed the path laid down by “SEWA”. “SEWA” is a trade union of poor, self-employed
women workers. Since 1987 “Mysore Resettlement and Development Agency” (MYRADA)
has promoted Credit Management Groups (CMGs). CMGs are similar to self-help groups.
The basic features of this concept promoted by MYRADA are: 1) Affinity 2) Voluntarism 3)
Homogeneity and 4) Membership should be limited to 15-20 persons. Aim of the CMG is to
bestow social empowerment to women. In 1991-92 NABARD started promoting self-help
groups on a large scale. And it was the real take-off point for the “SHG Movement”. In 1993,
the Reserve Bank of India also allowed SHGs to open savings account in banks. Facility to
availing bank services was a major boost to the movement.Now banks like NABARD, Bank
of Maharashtra, and State Bank of India. Co-operative Banks, Regional Rural Banks, The
Government Institutions like Maharashtra Arthik Vikas Mahamandal (MAVIM), District
Rural Development Agency (DRDA), Municipal Corporations and more are collectively and
actively involved in the promotion of SHG movement.
MICROFINANCE PRESENT STATUS IN INDIA
Microfinance sector has traversed a long journey from micro savings to microcredit and then
to micro enterprises and now entered the field of micro insurance, micro pension. Financial
institutions in the country continue to play a leading role in the microfinance program for
nearly two decades now. They have joined hands proactively with informal delivery channels
to give microfinance sector the necessary momentum. The data for year 2010-11 have been
presented and reviewed under two models of microfinance:
(1) SHG-Bank Linkage Model
The SHGs-Bank Linkage Programme has received wide acceptance among multiplicity of
Stake holders, civil society organizations, bankers and the international communities. Around

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1.2 million new SHGs had credit link with banks and 7.46 million SHGs maintained savings
account with bank in the financial year 2010-11.
(2) MFI-Bank Linkage Programme
The growth is also higher than corresponding growth under the SHGs-Bank Linkage
Programme in 2010-11. This is due to proactive role of the MFIs in microcredit and
professional management of funds from Banks.

ROLE OF MICROFINANCE:

The micro credit of microfinance progamme was first initiated in the year 1976 in
Bangladesh with promise of providing credit to the poor without collateral , alleviating
poverty and unleashing human creativity and endeavor of the poor people. Microfinance
impact studies have demonstrated that

1. Microfinance helps poor households meet basic needs and protects them against risks.
2. The use of financial services by low-income households leads to improvements in
household economic welfare and enterprise stability and growth.
3. By supporting women’s economic participation, microfinance empowers women,
thereby promoting gender-equity and improving household well-being.
4. The level of impact relates to the length of time clients have had access to financial
services.

Strategic Policy Initiatives

Some of the most recent strategic policy initiatives in the area of Microfinance taken by
the government and regulatory bodies in India are:
 Working group on credit to the poor through SHGs, NGOs, NABARD, 1995
 The National Microfinance Taskforce, 1999
 Working Group on Financial Flows to the Informal Sector (set up by PMO), 2002
 Microfinance Development and Equity Fund, NABARD, 2005
 Working group on Financing NBFCs by Banks- RBI

Activities in Microfinance
Microcredit: It is a small amount of money loaned to a client by a bank or other institution.
Microcredit can be offered, often without collateral, to an individual or through group
lending.

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Micro savings: These are deposit services that allow one to save small amounts of money for
future use. Often without minimum balance requirements, these savings accounts allow
households to save in order to meet unexpected expenses and plan for future expenses.
Micro insurance: It is a system by which people, businesses and other organizations make a
payment to share risk. Access to insurance enables entrepreneurs to concentrate more on
developing their businesses while mitigating other risks affecting property, health or the
ability to work.
Remittances: These are transfer of funds from people in one place to people in another,
usually across borders to family and friends. Compared with other sources of capital that can
fluctuate depending on the political or economic climate, remittances are a relatively steady
source of funds.

Legal Regulations
Banks in India are regulated and supervised by the Reserve Bank of India (RBI) under the
RBI Act of 1934, Banking Regulation Act, Regional Rural Banks Act, and the Cooperative
Societies Acts of the respective state governments for cooperative banks.
NBFCs are registered under the Companies Act, 1956 and are governed under the
RBI Act. There is no specific law catering to NGOs although they can be registered under the
Societies Registration Act, 1860, the Indian Trust Act, 1882, or the relevant state acts. There
has been a strong reliance on self-regulation for NGO MFIs and as this applies to NGO MFIs
mobilizing deposits from clients who also borrow. This tendency is a concern due to
enforcement problems that tend to arise with self-regulatory organizations. In January 2000,
the RBI essentially created a new legal form for providing microfinance services for NBFCs
registered under the Companies Act so that they are not subject to any capital or liquidity
requirements if they do not go into the deposit taking business. Absence of liquidity
requirements is concern to the safety of the sector.

WOMEN’S EMPOWERMENT AND MICRO FINANCE:

DIFFERENT PARADIGMS
Concern with women’s access to credit and assumptions about contributions to
women’s empowerment are not new. From the early 1970s women’s movements in a number
of countries became increasingly interested in the degree to which women were able to access
poverty-focused credit programmes and credit cooperatives. In India organizations like Self-
Employed Women’s Association (SEWA) among others with origins and affiliations in the

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Indian labour and women’s movements identified credit as a major constraint in their work
with informal sector women workers.
The problem of women’s access to credit was given particular emphasis at the first
International Women’s Conference in Mexico in 1975 as part of the emerging awareness of
the importance of women’s productive role both for national economies, and for women’s
rights. This led to the setting up of the Women’s World Banking network and production of
manuals for women's credit provision. Other women’s organizations world-wide set up credit
and savings components both as a way of increasing women’s incomes and bringing women
together to address wider gender issues. From the mid-1980s there was a mushrooming of
donor, government and NGO-sponsored credit programmes in the wake of the 1985 Nairobi
women’s conference (Mayoux, 1995a).
The 1980s and 1990s also saw development and rapid expansion of large minimalist poverty-
targeted micro-finance institutions and networks like Grameen Bank, ACCION and Finca
among others. In these organizations and others evidence of significantly higher female
repayment rates led to increasing emphasis on targeting women as an efficiency strategy to
increase credit recovery. A number of donors also saw female-targeted financially-
sustainable micro-finance as a means of marrying internal demands for increased efficiency
because of declining budgets with demands of the increasingly vocal gender lobbies.
The trend was further reinforced by the Micro Credit Summit Campaign starting in 1997
which had ‘reaching and empowering women’ as it’s second key goal after poverty reduction
(RESULTS 1997). Micro-finance for women has recently been seen as a key strategy in
meeting not only Millennium Goal 3 on gender equality, but also poverty Reduction, Health,
HIV/AIDS and other goals.

FEMINIST EMPOWERMENT PARADIGM

The feminist empowerment paradigm did not originate as a Northern imposition, but is firmly
rooted in the development of some of the earliest micro-finance programmes in the South,
including SEWA in India. It currently underlies the gender policies of many NGOs and the
perspectives of some of the consultants and researchers looking at gender impact of micro-
finance programmes (e.g. Chen 1996, Johnson, 1997).
Here the underlying concerns are gender equality6 and women’s human rights.
Women’s empowerment is seen as an integral and inseparable part of a wider process of
social transformation. The main target group is poor women and women capable of providing

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alternative female role models for change. Increasing attention has also been paid to men's
role in challenging gender inequality.
Micro-finance is promoted as an entry point in the context of a wider strategy for women’s
economic and socio-political empowerment which focuses on gender awareness and feminist
organization. As developed by Chen in her proposals for a sub sector approach to micro
credit, based partly on SEWA's strategy and promoted by UNIFEM, microfinance must be:
Part of a sectoral strategy for change which identifies opportunities, constraints and
bottlenecks within industries which if addressed can raise returns and prospects for large
numbers of women. Possible strategies include linking women to existing services and
infrastructure, developing new technology such as labour-saving food processing, building
information networks, shifting to new markets, policy level changes to overcome legislative
barriers and unionization.
Based on participatory principles to build up incremental knowledge of industries and enable
women to develop their strategies for change (Chen, 1996). Economic empowerment is
however defined in more than individualist terms to include issues such as property rights,
changes intra-household relations and transformation of the macro-economic context. Many
organizations go further than interventions at the industry level to include gender-specific
strategies for social and political empowerment. Some programmes have developed very
effective means for integrating gender awareness into programmes and for organizing women
and men to challenge and change gender discrimination. Some also have legal rights support
for women and engage in gender advocacy. These interventions to increase social and
political empowerment are seen as essential prerequisites for economic empowerment.

POVERTY REDUCTION PARADIGM

The poverty alleviation paradigm underlies many NGO integrated poverty-targeted
community development programmes. Poverty alleviation here is defined in broader terms
than market incomes to encompass increasing capacities and choices and decreasing the
vulnerability of poor people.
The main focus of programmes as a whole is on developing sustainable livelihoods,
community development and social service provision like literacy, healthcare and
infrastructure development. There is not only a concern with reaching the poor, but also the
poorest.

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Policy debates have focused particularly on the importance of small savings and loan
provision for consumption as well as production, group formation and the possible
justification for some level of subsidy for programmes working with particular client groups
or in particular contexts7. Some programmes have developed effective methodologies for
poverty targeting and/or operating in remote areas. Such strategies have recently become a
focus of interest from some donors and also the Microcredit Summit Campaign. Here gender
lobbies have argued for targeting women because of higher levels of female poverty and
women’s responsibility for household well-being. However although gender inequality is
recognized as an issue, the focus is on assistance to households and there is a tendency to see
gender issues as cultural and hence not subject to outside intervention.
Although term 'empowerment' is frequently used in general terms, often synonymous with a
multi-dimensional definition of poverty alleviation, the term ' women's empowerment ' is
often considered best avoided as being too controversial and political. The assumption is that
increasing women’s access to micro-finance will enable women to make a greater
contribution to household income and this, together with other interventions to increase
household well-being, will translate into improved well-being for women and enable women
to bring about wider changes in gender inequality.

FINANCIAL SUSTAINABILITY PARADIGM

The financial self-sustainability paradigm (also referred to as the financial systems approach
or sustainability approach) underlies the models of microfinance promoted since the mid-
1990s by most donor agencies and the Best Practice guidelines promoted in publications by
USAID, World Bank, UNDP and CGAP.
The ultimate aim is large programmes which are profitable and fully self-supporting in
competition with other private sector banking institutions and able to raise funds from
international financial markets rather than relying on funds from development agencies. The
main target group, despite claims to reach the poorest, is the ‘bankable poor': small
entrepreneurs and farmers. This emphasis on financial sustainability is seen as necessary to
create institutions which reach significant numbers of poor people in the context of declining
aid budgets and opposition to welfare and redistribution in macro-economic policy.
Policy discussions have focused particularly on setting of interest rates to cover costs,
separation of micro-finance from other interventions to enable separate accounting and
programme expansion to increase outreach and economies of scale, reduction of transaction
costs and ways of using groups to decrease costs of delivery. Recent guidelines for CGAP

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funding and best practice focus on production of a ‘financial sustainability index’ which
charts progress of programmes in covering costs from incomes.
Within this paradigm gender lobbies have been able to argue for targeting women on the
grounds of high female repayment rates and the need to stimulate women’s economic activity
as a hitherto underutilized resource for economic growth. They have had some success in
ensuring that considerations of female targeting are integrated into conditions of micro-
finance delivery and programme evaluation.
Alongside this focus on female targeting, the term ‘empowerment' is frequently used in
promotional literature. Definitions of empowerment are in individualist terms with the
ultimate aim being the expansion of individual choice or capacity for Self-reliance. It is
assumed that increasing women’s access to micro-finance services will in itself lead to
individual economic empowerment through enabling women's decisions about savings and
credit use, enabling women to set up micro-enterprise, increasing incomes under their
control. It is then assumed that this increased economic empowerment will lead to increased
well-being of women and also to social and political empowerment. These paradigms do not
correspond systematically to any one organisational model of micro-finance. Micro-finance
providers with the same organisational form e.g. village bank, Grameen model or cooperative
model may have very different gender policies and/or emphases and strategies for poverty
alleviation. The three paradigms represent different ‘discourses’ each with its own relatively
consistent internal logic in relating aims to policies, based on different underlying
understandings of development. They are not only different, but often seen as ‘incompatible
discourses’ in uneasy tension and with continually contested degrees of dominance. In many
programmes and donor agencies there is considerable disagreement, lack of communication
and/or personal animosity and promoted by different stakeholders within organisations
between staff involved in micro-finance (generally firm followers of financial self-
sustainability), staff concerned with human development (generally with more sympathy for
the poverty alleviation paradigm and emphasizing participation and integrated development)
gender lobbies (generally incorporating at least some elements of the feminist empowerment
paradigm). What is of concern in current debates is the way in which the use of apparently
similar terminology of empowerment, participation and sustainability conceals radical
differences in policy priorities. Although women’s empowerment may be a stated aim in the
rhetoric of official gender policy and program promotion, in practice it becomes subsumed in
and marginalized by concerns of financial sustainability and/or poverty alleviation.

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 ROLE OF MICROFINANCE IN WOMEN EMPOWERMENT

Microfinance is a powerful tool to assist the stumbling economies to recover and strengthen,
thereby making the lives of millions of poor people more self-respecting and dignified.
Microcredit has made women more productive by providing them opportunity to be self –
dependent in terms of their finance, helping them earn, making them aware of their rights and
making them independent which in turn has empowered them. Women are now included into
socio-economic activities of the country, they are contributing to family income and are a
part of decision-making process in the family and they are able to exercise more control over
their reproductive rights. Microfinance helps in integrating the financial needs of poor people
into a country’s mainstream financial system. It has been acknowledged that the development
of a healthy national financial system is an important goal and catalyst for the broader goal of
national economic development, which microfinance serves very well. Microfinance helps
the poor, including women in not just obtaining loans but also inculcating in them habits of
savings, investing in insurance policies and money transfer services. It helps them to raise
income, be self-dependent, build up assets and have a better life and better standard of living.
A majority of microfinance programmes target women with a goal to empower them.
Keeping up with the objective of financial viability, an increasing number of micro finance
institutions prefer women members as they believe that they are better and more reliable
borrowers. Shri Mahila Griha Udyog Lijjat Papad or Lijjat is an organization that has
acted as a catalyst in empowering poor urban women across India during the last four
decades. Starting as a small group of seven women in 1959, today Lijjat has more than
40,000 members in 62 branches across 17 Indian states. Only women can become members
of Lijjat. Rural India represents a vast opportunity with its largely unmet demand for
financial services. SBM Bank seeks to tap the significant rural commercial opportunity as
well as create a social impact on the rural poor. The primary function of RMAG is to provide
financial solutions to the vast rural hinterland. The group is thus responsible for all of SBM
Bank’s rural, micro-banking and agri-business initiatives.

Micro Banking:

The Business focuses on establishing a healthy and profitable lending exchange through
relationships with select MFIs (Microfinance institutions), and invests in building deeper and
concurrent monitoring and control mechanisms to enable healthy growth of the industry. The
Group is responsible for managing Commercial Banking opportunities with MFIs. The group

14 | P a g e
also manages the Business Correspondent Network to enable SBM Bank’s resolve towards
financial inclusion. Probably the most potential solution to ending poverty and enabling
people to work their way into a sustainable, improved situation is called microcredit
Microfinance. It has proved to be immensely valuable. It has become clear that poor need
access to money to send their children to school, to buy medicines; they need financial
services to reduce their vulnerability. As a result, worldwide, MFIs have started developing
and delivering a range of financial products. This reflects Millennium Development Goals
(MDGs) – poverty reduction, education, health and empowerment. Gender inequality is a
major factor affecting progress towards Millennium Development Goals. In our country also,
micro finance can be a tool for making women self-reliant. These women can provide their
children, including girls, with education which in turn can empower them, thereby setting a
new trend of independent women, enjoying their full potential. One of the powerful
approaches to woman empowerment is the movement of SHGs, which can transform woman
from being alive to live with dignity. The empowerment of women and improvement of their
status and economic role needs to be integrated into economic development programmes, as
the development of any country is inseparably linked with the status and development of
women.

MICRO FINANCE INSTRUMENT FOR WOMEN’S

EMPOWERMENT
Micro Finance is emerging as a powerful instrument for poverty alleviation in the new
economy. In India, micro finance scene is dominated by Self Help Groups (SHGs) – Bank
Linkage Programme, aimed at providing a cost effective mechanism for providing financial
services to the “unreached poor”. Based on the philosophy of peer pressure and group savings
as collateral substitute , the SHG programme has been successful in not only in meeting
peculiar needs of the rural poor, but also in strengthening collective self-help capacities of the
poor at the local level, leading to their empowerment. Micro Finance for the poor and
women has received extensive recognition as a strategy for poverty reduction and for
economic empowerment. Increasingly in the last five years , there is questioning of whether
micro credit is most effective approach to economic empowerment of poorest and, among
them, women in particular. Development practitioners in India and developing countries
often argue that the exaggerated focus on micro finance as a solution for the poor has led to
neglect by the state and public institutions in addressing employment and livelihood needs of
the poor.

15 | P a g e
 Credit for empowerment is about organizing people, particularly around credit and
building capacities to manage money. The focus is on getting the poor to mobilize their own
funds, building their capacities and empowering them to leverage external credit. Perception
women is that learning to manage money and rotate funds builds women’s capacities and
confidence to intervene in local governance beyond the limited goals of ensuring access to
credit. Further, it combines the goals of financial sustainability with that of creating
community owned institutions.
Before 1990’s, credit schemes for rural women were almost negligible. The concept
of women’s credit was born on the insistence by women oriented studies that highlighted the
discrimination and struggle of women in having the access of credit. However, there is a
perceptible gap in financing genuine credit needs of the poor especially women in the rural
sector.
There are certain misconception about the poor people that they need loan at
subsidized rate of interest on soft terms, they lack education, skill, capacity to save, credit
worthiness and therefore are not bankable. Nevertheless, the experiences of several SHGs
reveal that rural poor are actually efficient managers of credit and finance. Availability of
timely and adequate credit is essential for them to undertake any economic activity rather
than credit subsidy.
The Government measures have attempted to help the poor by implementing different
poverty alleviation programmes but with little success. Since most of them are target based
involving lengthy procedures for loan disbursement, high transaction costs, and lack of
supervision and monitoring. Since the credit requirements of the rural poor cannot be adopted
on project lending app roach as it is in the case of organized sector, there emerged the need
for an informal credit supply through SHGs. The rural poor with the assistance from NGOs
have demonstrated their potential for self help to secure economic and financial strength.
Various case studies show that there is a positive correlation between credit availability and
women’s empowerment.
PROBLEM AND CHALLENGES
Surveys have shown that many elements contribute to make it more Difficult for women
empowerment through micro businesses. These elements are:
 Lack of knowledge of the market and potential profitability, thus Making the choice
of business difficult.
 Inadequate book-keeping.

16 | P a g e
  Employment of too many relatives which increases social pressure to share benefits.
 Setting prices arbitrarily.
 Lack of capital.
 High interest rates.
 Inventory and inflation accounting is never undertaken.
 Credit policies that can gradually ruin their business (many customers cannot pay
cash; on the other hand, suppliers are very harsh towards women).
Other shortcomings includes,
1. Burden of meeting: Time consuming meetings, in particular in programmes based on
group lending, and time consuming income generating activities without reduction of
traditional responsibilities increase women’s work and time burden.
2. New Pressures: By using social capital, in-group lending/group collateral
programmes, additional stresses and pressures are introduced, which might increase
vulnerability and reflect disempowerment.
3. Reinforcement of traditional gender roles : lack of economic empowerment: Micro
finance assists women to perform traditional roles better and women thus remain trapped
in low productivity sectors, not moving from the group of survival enterprises to micro-
enterprises. There are evidence of men withdrawing their contributions to certain types of
household expenditures.

CHALLENGING ECONOMIC EMPOWERMENT

However impact on incomes is widely variable. Studies which consider income levels find
that for the majority of borrowers income increases are small, and in some cases negative. All
the evidence suggests that most women invest in existing activities which are low profit and
insecure and/or in their husband’s activities. In many programmes and contexts it is only in a
minority of cases that women can develop lucrative activities of their own through credit and
savings alone.
It is clear that women’s choices about activity and their ability to increase incomes are
seriously constrained by gender inequalities in access to other resources for investment,
responsibility for household subsistence expenditure, lack of time because of unpaid domestic
work and low levels of mobility, constraints on sexuality and sexual violence which limit
access to markets in many cultures.
These gender constraints are in addition to market constraints on expansion of the
informal sector and resource and skill constraints on the ability of poor men as well as

17 | P a g e
women to move up from survival activities to expanding businesses. There are signs,
particularly in some urban markets like Harare and Lusaka that the rapid expansion of micro-
finance programmes may be contributing to market saturation in ‘female’ activities and hence
declining profits.

CHALLENGING WELL BEING AND INTRA HOUSEHOLD

RELATION
There have undoubtedly been women whose status in the household has improved,
particularly where they have become successful entrepreneurs. Even where income impacts
have been small, or men have used the loan, the fact that micro-finance programmes have
thought women worth targeting and women bring an asset into the household may give some
women more negotiating power.
Savings provide women with a means of building up an asset base. Women
themselves also often value the opportunity to be seen to be making a greater contribution to
household well-being giving them greater confidence and sense of self-worth.
However women’s contribution to increased income going into households does not
ensure that women necessarily benefit or that there is any challenge to gender inequalities
within the household. Women’s expenditure patterns may replicate rather than counter gender
inequalities and continue to disadvantage girls. Without substitute care for small children, the
elderly and disabled, and provision of services to reduce domestic work many programmes
reported adverse effects of women’s outside work on children and the elderly. Daughters in
particular may be withdrawn from school to assist their mothers.
Although in some contexts women may be seeking to increase their influence within
joint decision-making processes rather than independent control over income (Kabeer 1998),
neither of these outcomes can be assumed. Women’s perceptions of value and self-worth are
not necessarily translated into actual well-being benefits or change in gender relations in the
household (Sen 1990, Kandiyoti 1999). Worryingly, in response to women’s increased (but
still low) incomes evidence indicates that men may be withdrawing more of their own
contribution for their own luxury expenditure. Men are often very enthusiastic about
women’s credit programmes, and other income generation out programmes, for this reason
because their wives no longer ‘nag’ them for money (Mayoux 1999).
Small increases in access to income and influence may therefore be at the cost of
heavier workloads, increased stress and women’s health. Although in many cases women’s

18 | P a g e
increased contribution to household well-being has improved domestic relations, in other
cases it intensifies tensions.

CHALLENGING SOCIAL AND POLITICAL EMPOWERMENT

There have been positive changes in household and community perceptions of
women’s productive role, as well as changes at the individual level. In societies like Sudan
and Bangladesh where women’s role has been very circumscribed and women previously had
little opportunity to meet women outside their immediate family there have sometimes been
significant changes. It is likely that changes at the individual, household and community
levels are interlinked and that individual women who gain respect in their households then act
as role models for others leading to a wider process of change in community perceptions and
male willingness to accept change (Lakshman, 1996).
Micro-finance has also been strategically used by some NGOs as an entry point for
wider social and political mobilization of women around gender issues. For example SEWA
in India, CODEC in Bangladesh and CIPCRE in Cameroon, indicate the potential of micro-
finance to form a basis for organization against other issues like domestic violence, male
alcohol abuse and dowry.
However there is no necessary link between women’s individual economic
empowerment and/or participation in micro-finance groups and social and political
empowerment. These changes are not an automatic consequence of microfinance per se. As
noted above, women’s increased productive role has also often had it costs.
There is no necessary link between women’s individual economic empowerment
and/or participation in micro-finance groups and social and political empowerment. These
changes are not an automatic consequence of microfinance per se. As noted above, women’s
increased productive role has also often had it costs21.
In most programmes there is little attempt to link micro-finance with wider social and
political activity. In the absence of specific measures to encourage this there is little evidence
of any significant contribution of micro-finance. Micro-finance groups may put severe strains
on women's existing networks if repayment becomes a problem (Noponen 1990; Rahman
1999). There is evidence to the contrary that micro-finance and income-earning may take
women away from other social and political activities.
The evidence therefore indicates that contributions of micro-finance per se to
women’s empowerment cannot be assumed and current complacency in this regard is
misplaced. In many cases contextual constraints at all levels have prevented women from

19 | P a g e
accessing programmes, increasing or controlling incomes or challenging subordination.
Where women are not able to significantly increase incomes under their control or negotiate
changes in intra-household and community gender inequalities, women may become
dependent on loans to continue in very low-paid occupations with heavier workloads and
enjoying little benefit.
For some women micro-finance has been positively disempowering, as indicated by some
of the cases shown above which are far from isolated examples:
 Credit (i.e. debt) may lead to severe impoverishment, abandonment and put serious
strains on networks with other women.
 Pressure to save may mean women forgoing their own necessary consumption.
 The contribution of micro-finance alone appears to be most limited for the poorest
and most disadvantaged women.
All the evidence suggests the poorest women are the most likely to be explicitly excluded
by programmes and also peer groups where repayment is the prime consideration and/or
where the main emphasis of programmes is on existing micro-entrepreneurs. It also suggests
that even where they get access to credit they are particularly vulnerable to falling further into
debt.
MICROFINANCE CHANGING THE FACE OF POOR INDIA
Micro-Finance is emerging as a powerful instrument for poverty alleviation in the
new economy. In India, micro-Finance scene is dominated by Self Help Groups (SHGs) -
Banks linkage Programme, aimed at providing a cost effective mechanism for providing
financial services to the 'unreached poor'. In the Indian context terms like "small and
marginal farmers", " rural artisans" and "economically weaker sections" have been used to
broadly define micro-finance customers. Research across the globe has shown that, over time,
microfinance clients increase their income and assets, increase the number of years of
schooling their children receive, and improve the health and nutrition of their families.
A more refined model of micro-credit delivery has evolved lately, which emphasizes
the combined delivery of financial services along with technical assistance, and agricultural
business development services. When compared to the wider SHG bank linkage movement in
India, private MFIs have had limited outreach. However, we have seen a recent trend of
larger microfinance institutions transforming into Non-Bank Financial Institutions (NBFCs).
This changing face of microfinance in India appears to be positive in terms of the ability of
microfinance to attract more funds and therefore increase outreach.

20 | P a g e
 In terms of demand for micro-credit or micro-finance, there are three segments, which
demand funds. They are:

 At the very bottom in terms of income and assets, are those who are landless and
engaged in agricultural work on a seasonal basis, and manual laborers in forestry,
mining, household industries, construction and transport. This segment requires, first
and foremost, consumption credit during those months when they do not get labor
work, and for contingencies such as illness. They also need credit for acquiring small
productive assets, such as livestock, using which they can generate additional income.

 The next market segment is small and marginal farmers and rural artisans, weavers
and those self-employed in the urban informal sector as hawkers, vendors, and
workers in household micro-enterprises. This segment mainly needs credit for
working capital, a small part of which also serves consumption needs. This segment
also needs term credit for acquiring additional productive assets, such as irrigation
pump sets, bore wells and livestock in case of farmers, and equipment (looms,
machinery) and work sheds in case of non-farm workers.

 The third market segment is of small and medium farmers who have gone in for
commercial crops such as surplus paddy and wheat, cotton, groundnut, and others
engaged in dairying, poultry, fishery, etc. Among non-farm activities, this segment
includes those in villages and slums, engaged in processing or manufacturing activity,
running provision stores, repair workshops, tea shops, and various service enterprises.
These persons are not always poor, though they live barely above the poverty line and
also suffer from inadequate access to formal credit.

Well these are the people who require money and with Microfinance it is possible. Right
now the problem is that, it is SHGs' which are doing this and efforts should be made so that
the big financial institutions also turn up and start supplying funds to these people. This will
lead to a better India and will definitely fulfill the dream of our late Prime Minister, Mrs.
Indira Gandhi, i.e. Poverty.
One of the statements is really appropriate here, which is as:
“Money, says the proverb makes money. When you have got a little, it is often easy to
get more. The great difficulty is to get that little.”Adams Smith.

21 | P a g e
 Today India is facing major problem in reducing poverty. About 25 million people in
India are under below poverty line. With low per capita income, heavy population pressure,
prevalence of massive unemployment and underemployment, low rate of capital formation,
misdistribution of wealth and assets, prevalence of low technology and poor economics
organization and instability of output of agriculture production and related sectors have made
India one of the poor countries of the world.

WHO ARE THE CLIENTS OF MICRO FINANCE?

The typical micro finance clients are low-income persons that do not have access to
formal financial institutions. Micro finance clients are typically self-employed, often
household-based entrepreneurs. In rural areas, they are usually small farmers and others who
are engaged in small income-generating activities such as food processing and petty trade. In
urban areas, micro finance activities are more diverse and include shopkeepers, service
providers, artisans, street vendors, etc. Micro finance clients are poor and vulnerable non-
poor who have a relatively unstable source of income.
Access to conventional formal financial institutions, for many reasons, is inversely
related to income: the poorer you are the less likely that you have access. On the other hand,
the chances are that, the poorer you are, the more expensive or onerous informal financial
arrangements. Moreover, informal arrangements may not suitably meet certain financial
service needs or may exclude you anyway. Individuals in this excluded and under-served
market segment are the clients of micro finance.
As we broaden the notion of the types of services micro finance encompasses, the
potential market of micro finance clients also expands. It depends on local conditions and
political climate, activeness of cooperatives, SHG & NGOs and support mechanism. For
instance, micro credit might have a far more limited market scope than say a more diversified
range of financial services, which includes various types of savings products, payment and
remittance services, and various insurance products. For example, many very poor farmers
may not really wish to borrow, but rather, would like a safer place to save the proceeds from
their harvest as these are consumed over several months by the requirements of daily living.
Central government in India has established a strong & extensive link between NABARD
(National Bank for Agriculture & Rural Development), State Cooperative Bank, District
Cooperative Banks, Primary Agriculture & Marketing Societies at national, state, district and
village level.

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 SELF HELP GROUPS (SHGS)
Self-help groups (SHGs) play today a major role in poverty alleviation in rural India.
A growing number of poor people (mostly women) in various parts of India are members of
SHGs and actively engage in savings and credit (S/C), as well as in other activities (income
generation, natural resources management, literacy, child care and nutrition, etc.). The S/C
focus in SHG is the most prominent element and offers a chance to create some control over
capital, albeit in very small amounts. The SHG system has proven to be very relevant and
effective in offering women the possibility to break gradually away from exploitation and
isolation.
Basically groups can be of two types:
Self Help Groups (SHGs): The group in this case does financial intermediation on
behalf of the formal institution. This is the predominant model followed in India.
Grameen Groups: In this model, financial assistance is provided to the individual in
a group by the formal institution on the strength of group’s assurance. In other words,
individual loans are provided on the strength of joint liability/co obligation. This
microfinance model was initiated by Bangladesh Grameen Bank and is being used by some
of the Micro Finance Institutions (MFIs) in our country.

Microfinance approach is based on certain proven truths which are not always recognized.
These are:
1. That the poor are bankable; successful initiatives in micro finance demonstrate that
there need not be a tradeoff between reaching the poor and profitability - micro

23 | P a g e
 finance constitutes a statement that the borrowers are not ‘weaker sections’ in need of
charity, but can be treated as responsible people on business terms for mutual profit .
2. That almost all poor households need to save, have the inherent capacity to save small
amounts regularly and are willing to save provided they are motivated and facilitated
to do so.
3. That easy access to credit is more important than cheap subsidized credit which
involves lengthy bureaucratic procedures - (some institutions in India are already
lending to groups or SHGs at higher rates - this may prevent the groups from enjoying
a sufficient margin and rapidly accumulating their own funds, but members continue
to borrow at these high rates, even those who can borrow individually from banks).
4. 'Peer pressure' in groups helps in improving recoveries.

HOW SELF-HELP GROUPS WORK

NABARD (1997) defines SHGs as "small, economically homogenous affinity groups of rural
poor, voluntarily formed to save and mutually contribute to a common fund to be lent to its
members as per the group members' decision".
Most SHGs in India have 10 to 25 members, who can be either only men, or only
women, or only youth, or a mix of these. As women's SHGs or sangha have been promoted
by a wide range of government and non- governmental agencies, they now make up 90% of
all SHGs.
The rules and regulations of SHGs vary according to the preferences of the members
and those facilitating their formation. A common characteristic of the groups is that they meet
regularly (typically once per week or once per fortnight) to collect the savings from members,
decide to which member to give a loan, discuss joint activities (such as training, running of a
communal business, etc.), and to mitigate any conflicts that might arise. Most SHGs have an
elected chairperson, a deputy, a treasurer, and sometimes other office holders.
Most SHGs start without any external financial capital by saving regular contributions
by the members. These contributions can be very small (e.g. Rs.10 per week). After a period
of consistent savings (e.g. 6 months to one year) the SHGs start to give loans from savings in
the form of small internal loans for micro enterprise activities and consumption. Only those
SHGs that have utilized their own funds well are assisted with external funds through
linkages with banks and other financial intermediaries.

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TYPES OF ORGANIZATION
These organizations are classified in the following categories to indicate the
functional aspects covered by them within the micro finance framework. The aim, however,
is not to "typecast" an organization, as these have many other activities within their scope:
Microfinance providers in India can be classified under three broad categories: formal,
semiformal, and informal.
 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
deposit at around Rs.350 billion and of that, around Rs.250 billion has been given as
advances. They charge an interest of 12-13.5% but if we include the transaction costs
(number of visits to banks, compulsory savings and costs incurred for payments to
animators/staff/local leaders etc.) they come out to be as high as 21-24%.

 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 philosophy, size, and capacity. There are over 500
non-government organizations (NGOs) registered as societies, public trusts, or non-
profit companies. Organizations implementing micro-finance activities can be
categorized into three basic groups.

I. Organizations which directly lend to specific target groups and are carrying
out all related activities like recovery, monitoring, follow-up etc.
II. Organizations that only promote and provide linkages to SHGs and are not
directly involved in micro lending operations.
III. Organizations which are dealing with SHGs and plan to start micro-finance
related activities.

 Informal Sector

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 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 financial lives of the
poor. These are the organizations that provide support to implementing organizations.
The support may be in terms of resources or training for capacity building,
counseling, networking, etc. They operate at state/regional or national level. They
may or may not be directly involved in micro-finance activities adopted by the
associations/collectives to support implementing Organizations.
DEVELOPMENT PROCESS THROUGH MICRO FINANCE

Donors and Banks Micro-Finance Government and Banks

Implementing Organizations

Individual Awareness/Promotional Work Individual

Promotion and Formation of

SHGs

Micro Enterprise Consolidation of SHGs Micro Enterprise

Savings

Consumption Needs Credit Delivery Production Needs

Recovery

Follow-up Monitoring

Income Generation (Sustainable

Farm Related & Growth Oriented) Non-Farm Related

Self-Sustainability of SHGs

Economic Empowerment
26 | P a g e
through use of Micro-Credit as
an entry point for overall
Empowerment
 Figure No. 1
MICRO-FINANCE INTERVENTIONS THROUGH DIFFERENT
ORGANISATIONS
National Government Funded Donors/Bilateral
Financial Banks
Programmes Projects
Institutions

Implementing Organizations

Resource/Support Indirectly
Organizations engaged in
Directly engaged in Micro-Finance
Micro-Finance

Individuals

SHGs

Members

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THE NEED IN INDIA:

 India is said to be the home of one third of the world’s poor; official estimates range
from 26 to 50 percent of the more than one billion population.
 About 87 percent of the poorest households do not have access to credit.
 The demand for microcredit has been estimated at up to $30 billion; the supply is less
than $2.2 billion combined by all involved in the sector.
Due to the sheer size of the population living in poverty, India is strategically significant
in the global efforts to alleviate poverty and to achieve the Millennium Development Goal of
halving the world’s poverty by 2015. Microfinance has been present in India in one form or
another since the 1970s and is now widely accepted as an effective poverty alleviation
strategy. Over the last five years, the microfinance industry has achieved significant growth
in part due to the participation of commercial banks. Despite this growth, the poverty
situation in India continues to be challenging.
Some principles that summarize a century and a half of development practice were
encapsulated in 2004 by Consultative Group to Assist the Poor (CGAP) and endorsed by the
Group of Eight leaders at the G8 Summit on June 10, 2004:

 Poor people need not just loans but also savings, insurance and money transfer
services.
 Microfinance must be useful to poor households: helping them raise income, build up
assets and/or cushion themselves against external shocks.
 “Microfinance can pay for itself.”Subsidies from donors and government are scarce
and uncertain, and so to reach large numbers of poor people, microfinance must pay
for itself.
 Microfinance means building permanent local institutions.
 Microfinance also means integrating the financial needs of poor people into a
country’s mainstream financial system.
 “The job of government is to enable financial services, not to provide them.”
 “Donor funds should complement private capital, not compete with it.”
 “The key bottleneck is the shortage of strong institutions and managers.” Donors
should focus on capacity building.
 Interest rate ceilings hurt poor people by preventing microfinance institutions from
covering their costs, which chokes off the supply of credit.

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  Microfinance institutions should measure and disclose their performance – both
financially and socially.

Microfinance can also be distinguished from charity. It is better to provide grants to

families who are destitute, or so poor they are unlikely to be able to generate the cash flow
required to repay a loan. This situation can occur for example, in a war zone or after a natural
disaster.

MICRO FINANCE MODELS

1. Micro Finance Institutions (MFIs):
MFIs are an extremely heterogeneous group comprising NBFCs, societies, trusts and
cooperatives. They are provided financial support from external donors and apex institutions
including the RashtriyaMahilaKosh (RMK), SIDBI Foundation for micro-credit and
NABARD and employ a variety of ways for credit delivery.
Since 2000, commercial banks including Regional Rural Banks have been providing funds
to MFIs for on lending to poor clients. Though initially, only a handful of NGOs were “into”
financial intermediation using a variety of delivery methods, their numbers have increased
considerably today. While there is no published data on private MFIs operating in the
country, the number of MFIs is estimated to be around 800.

Legal Forms of MFIs in India

Types of MFIs Estimated Legal Acts under which Registered
Number*
1. Not for Profit MFIs 400 to 500 Societies Registration Act, 1860 or
similar Provincial Acts
a.) NGO - MFIs
Indian Trust Act, 1882
b.) Non-profit Companies 10 Section 25 of the Companies Act,
1956
2. Mutual Benefit MFIs 200 to 250 Mutually Aided Cooperative Societies
a.) Mutually Aided Act enacted by State Government
Cooperative Societies (MACS)
and similarly set up institutions
3. For Profit MFIs 6 Indian Companies Act, 1956

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 a.) Non-Banking Financial Reserve Bank of India Act, 1934
Companies (NBFCs)
Total 700 – 800

2. Bank Partnership Model

This model is an innovative way of financing MFIs. The bank is the lender and the MFI
acts as an agent for handling items of work relating to credit monitoring, supervision and
recovery. In other words, the MFI acts as an agent and takes care of all relationships with the
client, from first contact to final repayment. The model has the potential to significantly
increase the amount of funding that MFIs can leverage on a relatively small equity base.
A sub - variation of this model is where the MFI, as an NBFC, holds the individual loans
on its books for a while before securitizing them and selling them to the bank. Such
refinancing through securitization enables the MFI enlarged funding access. If the MFI
fulfills the “true sale” criteria, the exposure of the bank is treated as being to the individual
borrower and the prudential exposure norms do not then inhibit such funding of MFIs by
commercial banks through the securitization structure.

3. Banking Correspondents
The proposal of “banking correspondents” could take this model a step further extending it
to savings. It would allow MFIs to collect savings deposits from the poor on behalf of the
bank. It would use the ability of the MFI to get close to poor clients while relying on the
financial strength of the bank to safeguard the deposits. This regulation evolved at a time
when there were genuine fears that fly-by-night agents purporting to act on behalf of banks in
which the people have confidence could mobilize savings of gullible public and then vanish
with them. It remains to be seen whether the mechanics of such relationships can be worked
out in a way that minimizes the risk of misuse.

4. Service Company Model

Under this model, the bank forms its own MFI, perhaps as an NBFC, and then works
hand in hand with that MFI to extend loans and other services. On paper, the model is similar
to the partnership model: the MFI originates the loans and the bank books them. But in fact,
this model has two very different and interesting operational features:

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  The MFI uses the branch network of the bank as its outlets to reach clients. This
allows the client to be reached at lower cost than in the case of a stand–alone MFI.
In case of banks which have large branch networks, it also allows rapid scale up. In
the partnership model, MFIs may contract with many banks in an arm’s length
relationship. In the service company model, the MFI works specifically for the bank
and develops an intensive operational cooperation between them to their mutual
advantage.
 The Partnership model uses both the financial and infrastructure strength of the
bank to create lower cost and faster growth. The Service Company Model has the
potential to take the burden of overseeing microfinance operations off the
management of the bank and put it in the hands of MFI managers who are focused
on microfinance to introduce additional products, such as individual loans for SHG
graduates, remittances and so on without disrupting bank operations and provide a
more advantageous cost structure for microfinance.

Bank Led Model

The bank led model was derived from the SHG-Bank linkage program of NABARD.
Through this program, banks financed Self Help Groups (SHGs) which had been promoted
by NGOs and government agencies.

Partnership Models
A model of microfinance has emerged in recent years in which a microfinance
institution (MFI) borrows from banks and on-lends to clients; few MFIs have been able to
grow beyond a certain point. Under this model, MFIs are unable to provide risk capital in
large quantities, which limits the advances from banks. In addition, the risk is being entirely
borne by the MFI, which limits its risk-taking.

MAJOR RISKS TO MICROFINANCE INSTITUTIONS

Risk is an integral part of financial services. When financial institutions issue loans,
there is a risk of borrower default. When banks collect deposits and on-lend them to other
clients (i.e. conduct financial intermediation), they put clients’ savings at risk. Any institution
that conducts cash transactions or makes investments risks the loss of those funds.
Development finance institutions should neither avoid risk (thus limiting their scope and
impact) nor ignore risk (at their folly). Like all financial institutions, microfinance institutions

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(MFIs) face risks that they must manage efficiently and effectively to be successful. If the
MFI does not manage its risks well, it will likely fail to meet its social and financial
objectives.
Many risks are common to all financial institutions. From banks to unregulated MFIs,
these include credit risk, liquidity risk, market or pricing risk, operational risk, compliance
and legal risk, and strategic risk. Most risks can be grouped into three general categories:
financial risks, operational risks and strategic risks,

Major Risk Categories

Financial Risks Operational Risks Strategic Risks

Governance Risk
Credit Risk Transaction Risk Ineffective oversight
Transaction risk Human resources Risk Poor governance structure
Portfolio risk Information & technology Reputation Risk
Liquidity Risk risk External Business
Market Risk Fraud (Integrity) Risk Risks
Interest rate risk Legal & Compliance Event risk
Foreign exchange Risk Risk
Investment portfolio
risk

 Financial Risks
The business of a financial institution is to manage financial risks, which include
credit risks, liquidity risks, interest rate risks, foreign exchange risks and investment portfolio
risks. Most microfinance institutions have put most of their resources into developing a
methodology that reduces individual credit risks and maintaining quality portfolios.
Microfinance institutions that use savings deposits as a source of loan funds must have
sufficient cash to fund loans and withdrawals from savings.
Those MFIs that rely on depositors and other borrowed sources of funds are also
vulnerable to changes in interest rates. Financial risk management requires a sophisticated
treasury function, usually centralized at the head office, which manages liquidity risk, interest
rate risk, and investment portfolio risk. As MFIs face more choices in funding sources and

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more product differentiation among loan assets, it becomes increasingly important to manage
these risks well.

 Credit risk
Credit risk, the most frequently addressed risk for MFIs, is the risk to earnings or
capital due to borrowers’ late and non-payment of loan obligations. Credit risk encompasses
both the loss of income resulting from the MFI’s inability to collect anticipated interest
earnings as well as the loss of principle resulting from loan defaults. Credit risk includes both
transaction risk and portfolio risk.
Transaction risk
Transaction risk refers to the risk within individual loans. MFIs mitigate transaction
risk through borrower screening techniques, underwriting criteria, and quality procedures for
loan disbursement, monitoring, and collection.
Portfolio risk
Portfolio risk refers to the risk inherent in the composition of the overall loan
portfolio. Policies on diversification (avoiding concentration in a particular sector or area),
maximum loan size, types of loans, and loan structures lessen portfolio risk.
 Liquidity risk
Liquidity risk is the possibility of negative effects on the interests of owners,
customers and other stakeholders of the financial institution resulting from the inability to
meet current cash obligations in a timely and cost-efficient manner.
Liquidity risk usually arises from management’s inability to adequately anticipate and
plan for changes in funding sources and cash needs. Efficient liquidity management requires
maintaining sufficient cash reserves on hand (to meet client withdrawals, disburse loans and
fund unexpected cash shortages) while also investing as many funds as possible to maximize
earnings (putting cash to work in loans or market investments).
A lender must be able to honor all cash payment commitments as they fall due and
meet customer requests for new loans and savings withdrawals. These commitments can be
met by drawing on cash holdings, by using current cash flows, by borrowing cash, or by
converting liquid assets into cash.
Some principles of liquidity management that MFIs use include:
 Maintaining detailed estimates of projected cash inflows and outflows for the next
few weeks or months so that net cash requirements can be identified.

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  Using branch procedures to limit unexpected increases in cash needs. For example,
some MFIs, such as ASA, have put limits on the amount of withdrawals that
customers can make from savings in an effort to increase the MFI’s ability to better
manage its liquidity.
 Maintaining investment accounts that can be easily liquidated into cash, or lines of
credit with local banks to meet unexpected needs.
 Anticipating the potential cash requirements of new product introductions or seasonal
variations in deposits or withdrawals.
Liquidity management has a short-term focus (the section on investment portfolio risk
below discusses longer-term cash management issues). Often, liquidity projections are
extended up to a year with diminishing detail on the far end of the timeline.

 Operational Risks
Operational risk arises from human or computer error within daily product delivery
and services. It transcends all divisions and products of a financial institution. This risk
includes the potential that inadequate technology and information systems, operational
problems, insufficient human resources, or breaches of integrity (i.e. fraud) will result in
unexpected losses.
This risk is a function of internal controls, information systems, employee integrity,
and operating processes. For simplicity, this section focuses on just two types of operational
risk: transaction risk and fraud risk.
 Transaction risk
Transaction risk exists in all products and services. It is a risk that arises on a daily
basis in the MFI as transactions are processed.12 Transaction risk is particularly high for
MFIs that handle a high volume of small transactions daily. When traditional banks make
loans, the staff person responsible is usually a highly trained professional and there is a very
high level of cross-checking. Since MFIs make many small, short-term loans, this same
degree of cross-checking is not cost-effective, so there are more opportunities for error and
fraud.
 Fraud risk
Until recently, fraud risk has been one of the least addressed risks in microfinance.
Also referred to as integrity risk, fraud risk is the risk of loss of earnings or capital as a result
of intentional deception by an employee or client. The most common type of fraud in an MFI

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is the direct theft of funds by loan officers or other branch staff. Other forms of fraudulent
activities include the creation of misleading financial statements, bribes, kickbacks, and
phantom loans.

 Strategic Risks
Strategic risks include internal risks like those from adverse business decisions or improper
implementation of those decisions, poor leadership, or ineffective governance and oversight,
as well as external risks, such as changes in the business or competitive environment. This
section focuses on three critical strategic risks: Governance Risk, Business Environment
Risk, and Regulatory and Legal Compliance Risk.
 Governance risk
One of the most understated and underestimated risks within any organization is the
risk associated with inadequate governance or a poor governance structure. The dangers of
poor governance that nearly resulted in the failure of that institution. Direction and
accountability come from the board of directors, who increasingly include representatives of
various stakeholders in the MFI (investors, borrowers, and institutional partners). The social
mission of MFIs attracts many high profile bankers and business people to serve on their
boards. Unfortunately, these directors are often reluctant to apply the same commercial tools
that led to their success when dealing with MFIs. As MFIs face the challenges of
management succession and the need to recruit managers that can balance social and
commercial objectives, the role of directors becomes more important to ensure the
institution’s continuity and focus.
To protect against the risks associated with poor governance structure, MFIs should
ensure that their boards comprise the right mix of individuals who collectively represent the
technical and personal skills and backgrounds needed by the institution. Most MFIs name
executive officers and some create special committees to fulfill specific roles on the board. In
addition, the institutional by-laws should be clear and well written, and accessible to all board
members.
Microfinance institutions are particularly vulnerable to governance risks resulting
from their institutional structure and ownership. One of the strongest links to effective
governance is ownership. Board members with a financial stake in the institution tend to have
stronger incentives to closely oversee operations. However, many MFIs operate as non-
governmental organizations whose board members have no financial stake in the institution.
Even many transformed commercial MFIs are primarily owned by the former non-

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governmental organization (NGO) and therefore the majority of their board members are not
real owners. In addition, many board members of commercial institutions represent public
development agencies and tend to think more like donors than traditional investors.
Microfinance institutions that operate as credit unions face a different type of governance
issue – their boards comprise client members, most of which are net borrowers whose focus
could be more on reducing lending rates than on the institution’s wellbeing.
Effective governance requires clear lines of authority for the board and management.
The board should have a clear understanding of its mandate, including its duties of care,
loyalty and obedience. MFIs can demonstrate short-term financial success without effective
governance, but effective governance is needed to see the institution through difficulties that
are bound to arise over the long-term. It is the board’s responsibility to oversee senior
management and hold them accountable for strategic decisions. If board members fail to
fulfill their duties effectively, the MFI risks financial loss as a result of poor decision making
or inadequate strategic planning.

 Reputation Risk
Reputation risk refers to the risk to earnings or capital arising from negative public
opinion, which may affect an MFI’s ability to sell products and services or its access to
capital or cash funds. Reputations are much easier to lose than to rebuild, and should be
valued as an intangible asset for any organization.
Most successful MFIs cultivate their reputations carefully with specific audiences,
such as with customers (their market), their funders and investors (sources of capital), and
regulators or officials. A comprehensive risk management approach and good management
information reporting helps an MFI speak the “language” of financial institutions and can
strengthen an MFI’s reputation with regulators or sources of funding.

 External business environment risk

Business environment risk refers to the inherent risks of the MFI’s business activity
and the external business environment. To minimize business risk, the microfinance
institution must react to changes in the external business environment to take advantage of
opportunities, to respond to competition, and to maintain a good public reputation. In Bolivia,
for example, many microfinance institutions have lost clients and reported lower profit
margins as a result of increased competition in the past couple of years. As in most

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businesses, it is often easier to focus on internal risks than to recognize shifts in the external
marketplace that can potentially affect the MFI.
MFIs need to check the validity of their assumptions against reality on a periodic
basis, and respond accordingly. A risk management framework establishes a discipline in
which those questions are encouraged and asked frequently (e.g., compare actual results to
budget and assess the reasons for variances). While external business risks are out of an
MFI’s direct control, the MFI can still anticipate them and prepare for their impact.
Anticipating and preparing for possible events or risks is the MFI’s responsibility. In
Bangladesh, microfinance institutions face the risk of floods, which can increase their credit
and liquidity risk when borrowers businesses are slowed or destroyed or their homes are
damaged and in need of immediate repairs. Some MFIs maintain higher cash reserves during
the flood season. As MFIs become formal financial institutions and more linked to the
financial and political economy, they become more vulnerable to external risk exposures.
While microfinance institutions can rarely prevent external risks from occurring, they can
often take preventative actions to minimize their impact on the institution.
In general, the best way for an MFI to reduce external risks is to integrate an effective
system of risk management into its culture and operations. An effective risk management
system should encourage directors and senior managers to ask whether they are prepared for
certain possible internal and external situations and whether they have built in sufficient
cushion for unexpected events.

RISK MANAGEMENT PROCESS FOLLOWED BY MFI

1. Identify, assess, and prioritize risks
The first step in risk assessment is to identify risks. To identify risks, the MFI reviews
its activities, function by function, and asks several questions. For example, the MFI
examines the credit and lending operations, and reviews funding sources, loan transactions
and portfolio management processes. While this can create a laundry list of minor risks
(many of which should be managed by branch, regional, or product managers), it should also
highlight the major risks that are most significant to the MFI and require management’s close
attention. Since product differentiation is becoming more prevalent in MFIs, the MFI should
assess each product’s specific risk profile. For example, housing loans are likely to have
higher delinquency and loss rates than the loans for income-generating activities.

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 In this case, the relative size and severity of risk in that housing portfolio requires
management’s special attention. In addition, the MFI should evaluate risks in individual
lending separately from peer group lending. Because individual loans tend to be larger and
are often made without co-guarantees, individual loan portfolios can be riskier and represent
a different type of risk exposure than group lending portfolios. By categorizing and
evaluating activities according to their risk profiles, MFIs can better understand risks and can
take action to reduce large exposures and avoid losses.

2. Develop strategies to measure risk

After the board and management define priorities, they can develop strategies that
guide the organization’s management of those risks. The board typically develops policies
and sets the outer parameters for the business activities of an organization. Within those
broad policies, management then develops guidelines and procedures for day-to-day
operations.
The board of directors is responsible for reviewing and approving policies that
minimize risk to the MFI (within its business strategy), protect the fiduciary interests of
investors and depositors, and ensure that the MFI fulfills its mission. The Board usually
reviews these polices on an annual basis (unless an event prompts a more frequent review) to
ask whether any adjustments are needed or if management recommends any changes. These
policies set the tolerable range of risk, within which management should operate.
Management develops the detailed guidelines and operational policies and procedures that fit
within those broad policies. Management should recommend any changes in policies to the
board, along with a rationale for each proposed change.
The goal is to make conscious, informed decisions about which risks to take, what is
an acceptable level of risk, and what cost-benefit tradeoff is reasonable. It is the board’s
responsibility to ensure that the MFI is making informed decisions about how much risk is
tolerable and that there is sufficient capital and liquidity for the MFI to absorb any financial
loss, should it occur. MFIs can make several choices on how to mitigate a risk. They can:
accept the risk as part of doing business (e.g. a cost of credit risk is annual loan losses);
mitigate the risk to bring it to reasonable levels through carefully-designed policies and
procedures (e.g. centralized disbursement, group lending, etc); eliminate the risk entirely (e.g.
security to prevent physical property loss or computer back-up for the management

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information systems); or transfer the risk to someone else (e.g. buy insurance against certain
losses).
In each case, management and the board must evaluate the cost/benefit tradeoffs.
Each of these strategies entails some cost, either in staff time, expenses, or opportunity costs.
For example, trying to eliminate credit risk would not be a good use of an MFI’s resources. It
would require changes in the target customer, and additional personnel to monitor borrowers
closely and pursue delinquent loans to avoid loss. The costs to the MFI in terms of increased
personnel, lower productivity, fewer loans to new customers (opportunity cost), and
significant management time, would exceed the potential benefit of protected revenues.
Alternatively, the MFI should set a range of acceptable loan loss and delinquency rates, and
monitor its portfolio carefully, watching for trends that suggest that those ranges might be
exceeded.
It is important to distinguish reasonable risk from risk avoidance or elimination. Too
much emphasis on risk avoidance can translate into incentives for staff to avoid poorer
borrowers and weaken the mission of the MFI. Many MFIs design a set of controls and
indicators that allows them to monitor the outcomes of their policies on borrower
composition and target customer base.

3. Design operational policies and procedures to mitigate risk

In most cases, an MFI lives with certain risks and designs a lending methodology and
system of controls and monitoring tools to ensure that a) risk does not exceed acceptable
levels, and b) there is sufficient capital or liquidity to absorb the loss if it occurs. These
controls might include:
 Policies and procedures at the branch level to minimize the frequency and scale of the
risk (e.g. dual signatures required on loans or disbursements of savings).
 Technology to reduce human error, speed data analysis and processing.
 Management information systems that provide accurate, timely and relevant data so
managers can track outputs and detect minor changes easily.
 Separate lines of information flow and reconciliation of portfolio management
information and cash accounting in the field to identify discrepancies quickly.
These are all examples of the internal controls MFIs use to maintain reasonable levels of
risk in their activities ex-ante, before operations. They are built into program design,
procedures and daily operations.

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 For example, an MFI that offers individual loans in addition to group loans, must adapt
the operational guidelines and procedures to mitigate the risks of individual lending. The
borrower screening and business assessment process will be different since the MFI is relying
on the cash flow from the business to repay the loan rather than group co-guarantees. While
loan disbursement procedures may remain the same as in traditional lending, loan monitoring
may require more frequent client visits, due to the lack of co-guarantors. Good management
information systems are critical to monitoring and mitigating risk. As Charles Waterfield
noted in his article on MIS systems, “As microfinance institutions scale up their operations
the needs for timely and accurate information increases – indeed the reliability of the
management information systems is often the difference between the success and failure of
the institution.”
Managers cannot monitor or manage risk without timely and relevant information. For
example, MFIs that operate through a decentralized branch or unit office network have
encouraged branch-level cash reconciliation and management reporting to detect problems
early and act quickly, reducing the risk that small problems grow into larger ones. Branch
managers can review delinquent borrowers and reconciliation of cash and program numbers
on a daily or weekly basis, allowing prompt corrective action. Many MFIs hold branches
accountable for being a profit center, giving branch managers responsibility for cash and
program reconciliation, choosing whether to fund loans with savings or borrow from head
office, and tracking expenses relative to interest and fee income.
Decentralized branch networks have other risk management advantages. Fraud or
personnel problems tend to be localized to a branch or region, limiting the scale of potential
financial loss compared to that within a highly centralized MFI. However, such decentralized
MFIs need a strong organizational culture and good information system to ensure that
policies and procedures are standardized and consistently followed. Without a high level of
discipline, operational and transaction risks increase.

4. Implement into operations and assign responsibility

The next step is for management to integrate those policies, procedures and controls
into operations and assign managers to oversee them. In the implementation process,
management should seek input from operational staff on the appropriateness of the selected
policies, procedures and controls. Operational staff can offer insight into the potential
implications of the controls in their specific areas of operation. If it is possible that the control

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measure will have an impact on clients, then management should speak with line staff to
understand the potential repercussions.
In addition, MFIs can use client surveys or interviews to understand clients’ reactions
to a new operational procedure or internal control measure. Some might believe that since the
MFI integrates all employees into the risk management system, it is unnecessary to assign
responsibility. However, there is an old adage that says, “If something is everyone’s
responsibility, it is no one’s.” To effect change, the risk management system must assign
clear responsibility to someone to implement the risk controls and ensure that they are
respected. Ideally, the person should be a senior manager with operations experience and
authority.
The MFI must determine who is responsible for monitoring and ensuring that the right
senior managers (or board of directors) receive relevant and useful infor mation, and that
specific personnel will be held accountable for implementing changes. The designated person
must be accountable to the board and senior management and must have the authority to
implement changes as needed. By assigning this level of responsibility to the position, the
MFI reinforces the importance of risk management throughout the organization. Clearly
identifying a risk manager and making his or her responsibilities very clear, increases the
likelihood that the steps will be implemented successfully.

5. Test effectiveness and evaluate results

Management must regularly check the operating results to ensure that risk
management strategies are indeed minimizing the risks as desired. The MFI evaluates
whether the operational systems are working appropriately and having the intended
outcomes. The MFI assesses whether it is managing risks in the most efficient and cost-
effective manner. By linking the internal audit function to risk management, the MFI can
systematically address these questions. To fully verify the accuracy of the MFI’s accounts
and reduce uncontrolled fraud and credit risks, the MFI should incorporate client visits into
the audit processes. Good management reporting is essential to understanding whether these
controls are effective, i.e. yielding the intended results. For example, South Shore Bank in
Chicago has monthly board meetings to review a series of reports with key ratios expressed
as monthly trends. These include monthly loan asset quality reports (delinquency by aging
category is expressed as a percentage of total loans, loan losses as a percentage of total loans
and total loan disbursements) and funds management reports (liquidity measured by loans to

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deposits and cash available to lend, investment portfolio mix, interest rate risk, and any
funding risk for grantfunded activities).
Trend and ratio reporting is the most efficient way for directors or senior managers to
absorb large amounts of information quickly. Following trends allows the institution to
“manage by exception.” Managers can scan the trends in key ratios and focus on those areas
where the trends are not positive or where there has been a change, thereby focusing their
limited time on the most important issues. Ratio analysis is one of the most useful tools in
managing financial institutions, since the relationships between different numbers are often
more important than the absolute numbers. This is especially true for large scale or quickly
growing MFIs. Management reporting should provide information on actual results compared
to budget, showing the variance, and tracks key ratios and numbers relevant to the MFI’s
operations.

6. Revise policies and procedures as necessary

Based on the summary reporting and internal audit findings, the board reviews risk
policies for necessary adjustments. To be most effective, the internal audit should report
directly to the MFI’s board of directors. While only significant internal audit findings are
reported to the board, the directors should ensure that necessary revisions are quickly made to
the systems, policies and procedures, as well as the operational workflow to minimize the
potential for loss. The internal audit report may make specific recommendations on how to
strengthen risk management areas depending on the audit scope. Management is responsible
for designing the specific changes, and in doing so should seek input from the internal audit
team as well as branch staff to ensure that operational changes are appropriate and will not
result in unforeseen, negative consequences to the MFI or its clients. MFIs are increasingly
adapting and adding new products to offer customers more choices and to differentiate their
products from the competition. With new products and product changes come new credit
risks, operational risks, and liquidity risks, which require new risk management strategies.

Ten Guidelines for Risk Management

Guidelines for Implementing a Risk Management Framework:

1. Lead the risk management process from the top

2. Incorporate risk management into process and systems design

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 3. Keep it simple and easy to understand
4. Involve all levels of staff
5. Align risk management goals with the goals of individuals
6. Address the most important risks first
7. Assign responsibilities and set monitoring schedule
8. Design informative management reporting to board
9. Develop effective mechanisms to evaluate internal controls
10. Manage risk continuously using a risk management
MICROFINANCE AND WOMEN EMPOWERMENT
Women as micro and small entrepreneurs have increasingly become the key target
group for micro finance programs. Consequently, providing access to micro finance facilities
is not only considered a pre-condition for poverty alleviation, but also considered as a
strategy for empowering women. In developing countries like INDIA micro finance is
playing an important role, promoting gender equality and is helping in empowering women
so that they can live quality life with dignity.
The study conducted by FINCA Client Poverty Assessment conducted in 2003
revealed that of the interviewed clients 81 percent were women, and it was found that food
security was 15 percent higher among their village banking clients than non-clients. The
report also showed clients to have 11 percent more of their children enrolled in school with
an 18 percent increase in healthcare benefits. Clients’ housing security was reported as 18
percent higher than non-clients. The assessment concluded that microfinance improved the
wellbeing of women clients and their families.
Microfinance has a positive effect on the empowerment of women by creating an
“empowerment indicator”.
These indicators can be based on the following factors:

 Mobility.
 Economic security- enables poor women in making them economic agents of change
by increasing their income and productivity.
 Ability to make small purchases.
 Ability to make larger purchases.
 Involvement in major household decisions.
 Relative freedom from domination within the family.
 Political and legal awareness.

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  Involvement in political campaigning and protests.
 To access to markets and information.
 They become more confident.
 They get a better control of the resources.
 They can confront systemic gender inequalities

MICRO CREDIT AND WOMEN'S EMPOWERMENT

Before 1990's, credit schemes for rural women were almost negligible. The concept of
women's credit was born on the insistence by women oriented studies that highlighted the
discrimination and struggle of women in having access to credit. However, there is a
perceptible gap in financing genuine credit needs of the poor especially women in the rural
sector.
There are certain misconceptions about the poor people that they need loan at
subsidized rates of interest on soft terms, they lack education, skills, capacity to save, credit-
worthiness and therefore are not bankable. Nevertheless, the experiences of several SHGs
(self-help groups) reveal that rural poor are actually efficient managers of credit and finance.
Availability of timely and adequate credit is essential for them to undertake any economic
activity rather than credit subsidy.
The Government measures have attempted to help the poor by implementing different
poverty alleviation programmes but with little success. Since most of them are target-based
involving lengthy procedures for loan disbursements, high transaction costs, and lack of
supervision and monitoring. Banks often suffer from poor repayment leading to a high level
of non-performing assets NPAs (non-performing assets).
Since the credit requirements of the rural poor cannot be adopted on project lending
approach as it is in the case of organized sector, there emerged the need for an informal credit
supply through SHGS. The rural poor with the assistance from NGOs have demonstrated
their potential for self-help to secure economic and financial strength. Various case studies
show that there is a positive correlation between credit availability and women's
empowerment.
Microfinance refers to the provision of financial services to low-income clients, including
consumers and the self-employed. Microfinance programmes are currently being promoted as
a key strategy for simultaneously addressing both poverty alleviation and women's

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empowerment. Where financial service provision leads to the setting up or expansion of
microenterprises there are a range of potential impacts including:

 Increasing women's income levels and control over income leading to greater levels of
economic independence
 Access to networks and markets giving wider experience of the world outside the
home, access to information and possibilities for development of other social and
political roles.
 Enhancing perceptions of women's contribution to household income and family
welfare, increasing women's participation in household decisions about expenditure
and other issues and leading to greater expenditure on women's welfare.

The term micro finance is of recent origin and is commonly used in addressing issues
related to poverty alleviation, financial support to micro entrepreneurs, gender development
etc. There is, however, no statutory definition of micro finance. The taskforce on supportative
policy and Regulatory Framework for Microfinance has defined microfinance as “Provision
of thrift, credit and other financial services and products of very small amounts to the poor in
rural, semi-urban or urban areas for enabling them to raise their income levels and improve
living standards”. The term “Micro” literally means “small”. But the task force has not
defined any amount. However as per Micro Credit Special Cell of the Reserve Bank Of India
, the borrowable amounts up to the limit of Rs.25000/- could be considered as micro credit
products and this amount could be gradually increased up to Rs.40000/- over a period of time
which roughly equals to $500 – a standard for South Asia as per international perceptions.
The term micro finance sometimes is used interchangeably with the term micro credit.
However while micro credit refers to purveyance of loans in small quantities, the term
microfinance has a broader meaning covering in its ambit other financial services like saving,
insurance etc. as well. The mantra “Microfinance” is banking through groups. The essential
features of the approach are to provide financial services through the groups of individuals,
formed either in joint liability or co-obligation mode.
The other dimensions of the microfinance approach are:-

 Savings/Thrift precedes credit

 Credit is linked with savings/thrift
 Absence of subsidies

45 | P a g e
  Group plays an important role in credit appraisal, monitoring and recovery.

BEIJING CONFERENCE 1995 HAD IDENTIFIED CERTAIN INDICATORS OF

WOMEN EMPOWERMENT

Important among them are as follows:

 Increase in self-esteem, individual and collective confidence

 Increase in articulation, knowledge and awareness on health, nutrition reproductive
rights, law and literacy
 Increase an decrease in personal leisure time and time for child care;
 Increase on decrease of workloads in new programmes
 Change in roles and responsibility in family & community.
 Visible increase on decrease in violence on women and girls;
 Responses to, changes in social customs like child marriage, dowry, discrimination
against widows
 Visible changes in women's participation level attending meeting, participating and
demanding participation
 Increase in bargaining and negotiating power at home, in community and the
collective
 Increase access to and ability to gather information
 Formation of women collectives
 Positive changes in social attitudes
 Awareness and recognition of women's economic contribution within and outside the
household;
 Women’s decision-making over her work and income

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 CHAPTER II
RESEARCH METHODOLOGY
Methodology is a way to systematically solve the problem and it is a game plan for
conducting research. And also it is a framework for the study and is used as a guide in
collecting and analyzing the data.
This is a Secondary data based study conducted at State Bank of Mysore, Pandavapura
branch. Pandavapura.
Method of Data Collection
Primary Data
This section discusses the techniques of gathering primary data for the testing of the research
propositions that were crafted in Chapter I and II. The choice of the data instruments depends
on the availability of facilities, time, costs, the degree of accuracy required, the expertise of
the researcher, and other resources associated with the gathering of the data. The
questionnaire is mailed electronically and delivered by hand delivery to the respondent by
researcher or family members or friends and was collected later as per respondents preference
as to giving filling the preprinted form or giving the pre filled questionnaire print form.

Secondary Data
Here only Secondary data’s are used for collect the data.
(i) The information is collected through interviewing the Bank Manager.
(ii) The information is collected through the Web site/ Internet
(iii) The information is collected through Books, Magazines and Journals.
Statistical Techniques
Pie charts and Bar charts are used to analyze the data and to arrive at conclusions.
LIMITATIONS OF THE STUDY
1) The study is confined with the rural area. Hence the results may not be applicable to
urban area.
2) All the information available was from secondary sources and data was very vast to
analyze properly and accurately.
3) Study being conducted was very wide and analysis requires expertise knowledge and
skills which was lacking.
4) The information is collected from indirect sources so in some information data is not
available.

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 NEED FOR THE STUDY
Since independence, various governments in India have experimented with a large number of
grant and subsidy based poverty alleviation programmes. These programmes were based on
grant/subsidy and the credit linkage was through commercial banks only. Hence was adopted
the concept of micro-credit in India. In olden days women were restricted to take part in any
social activities and not given roles in decision making in her family. The situation was even
more worsening in rural and remote areas. Now the situation has been changed. She is given
freedom to do what she wishes. In today’s scenario are women are engaged in income
generating activities. This is because of NGO and other financial institution came forward to
provide microfinance to poor women. They believe that a woman is the small credit risk and
often benefits the whole family. The main aim of microfinance is to empower women and
poverty alleviation.
India has adopted the model of extending credit to the poorest sector and took a number of
steps to promote micro-financing in the country. So this study is necessary to know more
about microfinance concept. To know how SBM banks are providing microfinance services
to poor people and how it helps to promote poor people to improve their standard of living.
To know how SBM banks are improve and develop the savings habit from poor people
through microfinance concept. If anyone wants to get microfinance facility what are all the
procedure is there.
SCOPE OF THE STUDY
Microfinance initiatives to finance the projects and bring economic development may
get benefitted by implementing innovative approaches and reinforcing their objectives. Most
of the microfinance critics claim that it is ‘over-hyped’. However, several success stories
have treated it as the most effective and successful form of poverty mitigation, when
implemented under the proper conditions. Microfinance industry is at the important stage of
evolvement. The industry has already moved away from the traditional loan system to
individual loans. When an individual grows his businesses to certain point, he will be paired
it with another person, so that they can become counter guarantee for each other.
OBJECTIVES OF THE STUDY
1) To analyze the institutional financial assistance given by the bank for the SHG group
members.
2) To know the risk is face by the employees in the bank.
3) To know the bank action if any microfinance loan holder fails to repay the loan amount.

48 | P a g e
4) To clarify the limitation of microfinance programmes as the tool for women’s
empowerment and the type of support service necessary to maximize the contribution of
microfinance service.
5) To offer suggestions for the betterment of microfinance service to poor women for their
women empowerment and poverty alleviation.

49 | P a g e
 CHAPTER III

3.1 LITERTURE REVIEW

Chintamani Prasad Patnaik (March 2012)

Has examined that microfinance seems to have generated a view that microfinance
development could provide an answer to the problems of rural financial market development.
While the development of microfinance is undoubtedly critical in improving access to finance
for the unserved and underserved poor and low-income households and their enterprises, it is
inadequate to address issues of rural financial market development.

R.Prabhavathy (2012)

Has examined that collective strategies beyond micro-credit to increase the

endowments of the poor/women enhance their exchange outcomes the family, markets, state
and community, and socio-cultural and political spaces are required for both poverty
reduction and women empowerment. Even though there were many benefits due to micro-
finance towards women empowerment and poverty alleviation, there are some concerns.
First, these are dependent on the programmatic and institutional strategies adopted by the
intermediaries, second, there are limits to how far micro-credit interventions can alone reach
the ultra-poor, third the extent of positive results varies across household headship, caste and
religion and fourth the regulation of both public and private infrastructure in the context of
LPG to sustain the benefits of social service providers.
Ranjula Bali Swaina and Fan Yang Wallentin (2009)
Has examined that microfinance service lenders are empowered by participating in
microfinance program in the sense that they have a greater propensity to resist existing
gender norms and culture, which restrict their ability to develop and make choices.

Crabb, P. (2008)

Has examined that the relationship between the success of microfinance institutions
and the degree of economic freedom in their host countries. Many microfinance institutions
are currently not self-sustaining and research suggests that the economic environment in
which the institution operates is an important factor in the ability of the institution to reach

50 | P a g e
this goal, furthering its mission of outreach to the poor. The sustainability of the micro
lending institutions is analyzed here using a large cross-section of institutions and countries.
The results show that microfinance institutions operate primarily in countries with a relatively
low degree of overall economic freedom and that various economic policy factors are
important to sustainability.
Akula (2008)
Has examined Government tries to help poor people in rural area by providing
subsidies and other help but these initiatives hardly reduce their poverty levels and are not a
long term solution. But with the help of microfinance can easily reduce poverty level through
providing proper guidance, power of capital and productive assets services.

Srinivasan, Sunderasan (2007)

Has examined that micro banking facilities have helped large numbers of developing
country nationals by supporting the establishment and growth of microenterprises. And yet,
the microfinance movement has grown on the back of passive replication and needs to be
revitalized with new product offerings and innovative service delivery. Renewable Energy
systems viz., solar home systems, biogas digesters, etc., serve to improve indoor air quality,
provide superior light and extend working and study hours. Such applications are not
inherently income generating and returns on such investments accrue from cost avoidance,
but should qualify for micro funding, as such 'quality of life' investments, reflect borrower
maturity and simultaneously contribute to MFI sustainability.

Mohammed AnisurRahaman (2007)

Has examined that about microfinance and to investigate the impact of microfinance
on the poor people of the society. Microfinance has the positive impact on the standard of
living of the poor people and on their life style. It has not only helped the poor people to
come over the poverty line, but has also helped them to empower themselves.

Reginald Indon (2007)

Has examined that informal businesses represent a very large cross-section of

economic enterprises operating in the country. Informal businesses may be classified as the
livelihood/ survival type or the entrepreneurial/ growth-oriented type. Livelihood enterprises
are those which show very limited potential for growth in both income and employment

51 | P a g e
generation. There are existing policies, program and services that directly/ indirectly cover
informal. Variety of support programs, services and information are currently being offered
by different institutions. These programs and support services fail to reach or remain
inaccessible to informal business operators and owners. This is borne out of and perpetuated
by lopsided economic policies and poor governance that inadvertently encumber informal
businesses from accessing mainstream resources and services.

Linda Mayoux (Feb 2006)

Has examined that Micro-finance programmes not only give women and men access
to savings and credit, but reach millions of people worldwide bringing them together
regularly in organized groups. Through their contribution to women’s ability to earn an
income, micro-finance programmes can potentially initiate a series of ‘virtuous spirals’ of
economic empowerment, increased well-being for women and their families and wider social
and political empowerment Banks generally use individual rather than group-based lending
and may not have scope for introducing non-financial services.

Dr. JyotishPrakashBasu (2006)

Has examined that the two basic research questions. First, the paper tries to attempt to
study how a woman’s tendency to invest in safer investment projects can be linked to her
desire to raise her bargaining position in the households. Second, in addition to the project
choice, women empowerment is examined with respect to control of savings, control of
income, control over loans, control over purchasing capacity and family planning in some
sample household in Hooghly district of West Bengal. The empowerment depends on the
choice of investment of project. The choice of safe project leads to more empower of women
than the choice of uncertain projects. The Commercial Banks and Regional Rural banks
played a crucial role in the formation of groups in the SHGs -Bank Linkage Program in
Andhra Pradesh whiles the Cooperative Banks in West Bengal.

Mallory A. Owen (2006)

Has examined that microfinance has signaled a paradigm shift in development

ideology. Using my experiences with microfinance in a fishing village in Senegal, this study
will address the claims driving the microfinance movement, debate its pros and cons and pose

52 | P a g e
further questions about its validity and widespread implementation. Instead of lifting people
out of poverty and empowering women, microfinance may have regressive long term
potential for borrowers. How loans get used is a central theme of this essay. How
microfinance and the notion of the “entrepreneur” fit into the rural, Senegalese cultural
context is also addressed. Microfinance programs should be implemented with
complementary measures that challenge the systematic causes of inequality examined in this
article. The microfinance model (group lending based on joint liability) uses the social capital
generated by group membership to ensure that loans get re-financed. If one woman fails to
pay back her loan, she puts her entire loan group at jeopardy. As a result, “Women’s
participation in microenterprise does not show any signs of creating the new forms of
solidarity among women that the advocates of empowerment desire. Instead, women are
placed under enormous pressure to maintain existing modes of social relationships, on which
depends not only the high rates of loan repayments but also the survival of families.”

Fehr, D. and G. Hishigsuren. (2006)

Has examined that microfinance institutions (MFIs) provide financial services to the
poorest households. To date, funding of MFI activities has come primarily from outright
donor grants, government subsidies, and often debt capital, including debt with non-market
terms favorable to the MFI. These traditional sources of MFI financing may not be sufficient
to allow MFIs to provide maximum services. There is a subset of the pool of mainstream
equity investors who would consider investing in MFI opportunities, even knowing that they
would not expect to earn the full economic rate of return that such investments would
otherwise require. However, as part of their investment evaluation process, these investors
would ask: What would the market determine required expected rate of return for my MFI
investment be? What return on investment (ROI) do I expect to earn on my MFI investment?
Is the difference in the above two returns acceptable given my level of social motivation?
How will I "monetize" my investment and when? The purpose of this article is to employ
modern corporate finance techniques to address these questions.

John A. Brett. (2006)

Has examined that having borrowed money from a microfinance organization to start
a small business, many women in El Alto, Bolivia are unable to generate sufficient income to
repay their loans and so must draw upon household resources. Working from the women's

53 | P a g e
experience and words, this article explores the range of factors that condition and constrain
their success as entrepreneurs. The central theme is that while providing the poor access to
credit is currently very popular in development circles, the social and structural context
within which some women operate so strongly constrains their productive activity that they
realize a net income loss at the household level instead of the promised benefits of
entrepreneurship. This paper explores the social and structural realities in which women seek
out and accept debt beyond their capacity to repay from the proceeds of their business
enterprise. By examining some of the "hidden costs" of microfinance participation, this paper
argues for a shift from evaluation on outcomes at the institutional level to outcomes at the
household level to identify the forces and factors that condition women's success as micro-
entrepreneurs.

NidhiyaMenon (2006)

Has examined that this paper studies the benefits of participation in micro-finance
programs, where benefits are measured in terms of the ability to smooth the effect of seasonal
shocks that cause consumption fluctuations. It is shown that although membership in these
programs is an effective instrument in combating inter-seasonal consumption differences,
there is a threshold levels of length of participation beyond which benefits begin to diminish.

Shannon Doocy, Dan Norell, ShimelesTeffera, and Gilbert Burnham (2005)

Has examined that Management decision making in MFIs is becoming increasingly

tied to collecting information about social performance. This paper examines the impact of
participation in an Ethiopian microfinance program on indicators of socioeconomic status
including wealth, income, and home or land ownership. A survey assessing these outcomes
was conducted in May 2003 in two predominantly rural sites in Southern Ethiopia and
included 819 households. The article discusses management decisions made as the result of
survey findings about socioeconomic status and food security to increase retention rates and
to facilitate client savings. Additionally, the management was prompted to increase the
number of female clients and raise the proportion of female loan officers. This paper
illustrates how data from routine monitoring and evaluation can be linked to MFI
management decision making, which ultimately results in providing better microfinance

54 | P a g e
services. Household asset data indicates that participation in the WISDOM microfinance
program did not result in increased household wealth.

Basu, P., Srivastava (2005)

Has examined that the current level and pattern of access to finance for India's rural
poor and examines some of the key microfinance approaches in India, taking a close look at
the most dominant among these, the Self Help Group (SHG) Bank Linkage initiative. It
empirically analyzes the success with which SHG Bank Linkage has been able to reach the
poor, examines the reasons behind this, and the lessons learned. The analysis in the paper
draws heavily on a recent rural access to finance survey of 6,000 households in India,
undertaken by the authors. The main findings and implications of the paper are as follows:
India's rural poor currently have very little access to finance from formal sources.
Microfinance approaches have tried to fill the gap. Among these, the growth of SHG Bank
Linkage has been particularly remarkable, but outreach remains modest in terms of the
proportion of poor households served. The paper recommends that, if SHG Bank Linkage is
to be scaled-up to offer mass access to finance for the rural poor, then much more attention
will need to be paid towards: the promotion of high quality SHGs that are sustainable, clear
targeting of clients, and ensuring that banks linked to SHGs price loans at cost-covering
levels. At the same time, the paper argues that, in an economy as vast and varied as India's,
there is scope for diverse microfinance approaches to coexist. Private sector micro financiers
need to acquire greater professionalism, and the government, too, can help by creating a
flexible architecture for microfinance innovations, including through a more enabling policy,
legal and regulatory framework. Finally, the paper argues that, while microfinance can, at
minimum, serve as a quick way to deliver finance to the poor, the medium-term strategy to
scale-up access to finance for the poor should be to 'graduate' microfinance clients to formal
financial institutions. The paper offers some suggestions on what it would take to reform
these institutions with an eye to improving access for the poor.

Ernest Aryeetey (2005)

Has examined that informal finance and microfinance suitable for financing growing
small to medium size enterprises (SMEs) in Sub-Saharan Africa? First, I present the
characteristics of informal finance, focusing on size, structure, and scope of activities.
Informal finance has not been very attractive for the private sector. Indeed, the informal

55 | P a g e
sector has considerable experience and knowledge about dealing with small borrowers, but
there are significant limitations to what it can lend to growing micro businesses. Second, I
discuss some recent trends in microfinance. While externally driven microfinance projects
have surfaced in Africa, their performance relative to small business finance has not been as
positive as in Asia and Latin America. Third, I introduce some possible steps toward a new
reform agenda that will make informal and microfinance relevant to private sector
development, including focusing on links among formal, semi-formal and informal finance
and how these links can be developed.

EoinWrenn (2005)

Has examined that microfinance creates access to productive capital for the poor,
which together with human capital, addressed through education and training, and social
capital, achieved through local organization building, enables people to move out of poverty
(1999). By providing material capital to a poor person, their sense of dignity is strengthened
and this can help to empower the person to participate in the economy and society. The
impact of microfinance on poverty alleviation is a keenly debated issue as we have seen and
it is generally accepted that it is not a silver bullet, it has not lived up in general to its
expectation (Hulmeand Mosley, 1996). However, when implemented and managed carefully,
and when services are designed to meet the needs of clients, microfinance has had positive
impacts, not just on clients, but on their families and on the wider community.

Cheston & Kuhn (2004)

Has examined that in their study concluded that micro-finance programmes have been
very successful in reaching women. This gives micro-finance institutions an extraordinary
opportunity to act intentionally to empower poor women and to minimize the potentially
negative impacts some women experiences. We also found increased respect from and better
relationships with extended family and in-laws. While there have been some reports of
increased domestic violence, Hashemi and Schuler found a reduced incidence of violence
among women who were members of credit organizations than among the general
population.

Jennifer Meehan (2004)

56 | P a g e
 Has examined that it will need to do three things simultaneously. First, it will need to
rapidly scale up, in key markets, like India, home to high numbers of the world’s poor.
Second, in this process, clear priority is needed for philanthropic, quasi-commercial and
commercial financing for the business plans of MFIs targeting the poorest segments of the
population, especially women. Third, microfinance will need to realize its possibility as a
broad platform and movement, more than simply an intervention and industry. The
pioneering financings completed by leading, poverty-focused MFIs have shown the industry
what is possible – large amounts of financing that allows for rapid expansion of financial
services to new poor customers. The MFIs offer a model to others that are interested in
tapping the financial markets. If leading MFIs continue on their present course and adopt
some or all of the suggestions offered, financial market interest – or more specifically, debt
capital market interest – in leading, poverty-focused MFIs is expected to grow.

Yunus (2003)

Has examined that count 130 McMaster School for Advancing Humanity on women
to spread the word to their neighbors and friends about the success of these loans. The
testimony is expected to convince others to seek out Grameen for help. Yunus also
encourages members to save some of their money in case they fall on hard times, such as
natural disasters, or to use this money for other opportunities. In 1977, Yunus founded
Grameen Bank after working for six months to get a loan from the Janata Bank. Yunus
realized that having groups of people take out a loan was a better plan for success than giving
loans to individuals. He describes the process by which Grameen Bank lends money. Loan
repayments are to be made in very small amounts, and in the first project, Yunus chose a
villager to be in charge of collecting the repayments.

SusyCheston (2002)

Has examined that Microfinance has the potential to have a powerful impact on
women’s empowerment. Although microfinance is not always empowering for all women,
most women do experience some degree of empowerment as a result. Empowerment is a
complex process of change that is experienced by all individuals somewhat differently.
Women need, want, and profit from credit and other financial services. Strengthening
women’s financial base and economic contribution to their families and communities plays a
role in empowering them. Product design and program planning should take women’s needs

57 | P a g e
and assets into account. By building an awareness of the potential impacts of their programs,
MFIs can design products, services, and service delivery mechanisms that mitigate negative
impacts and enhance positive ones.

Hunt, J & Kasynathan (2002)

Has examined that poor women and men in the developing world need access to
microfinance and donors should continue to facilitate this. Research suggests that equity and
efficiency arguments for targeting credit to women remain powerful: the whole family is
more likely to benefit from credit targeted to women, where they control income, than when
it is targeted to men. Microfinance must also be re-assessed in the light of evidence that the
poorest families and the poorest women are not able to access credit. A range of microfinance
packages is required to meet the needs of the poorest, both women and men. Donors need to
revisit arguments about the sustainability of microfinance programmes. Financial
sustainability must be balanced against the need to ensure that some credit packages are
accessible to the poorest.
Cheston and Kuhn (2002)
Has examined that microfinance impacts on various dimensions for empowerment of
poor people i.e., impact on decision making, on self confidence, on their status at home, on
family relationships and on their involvement in the community.

58 | P a g e
 CHAPTER IV
DATA ANALYSIS
Q1) Does Microfinance has the ability to empower women? In what way are
women empowered?

RESPONDENTS PERCENTAGE
YES 80
NO 20

Abiltiy to Empower

20%

Yes
No

80%

59 | P a g e
Q2) Are there any personal gains for the women who are partial patign in a self
help group?
RESPONDENTS PERCENTAGE
ECONOMIC 50
SOCIAL 25
POLITICAL 10
CULTURAL COST 15

Personal Gains

15%

Economic
10%
Social
50%
Politcial
Cultural Cost

25%

60 | P a g e
Q3) Does the microfinance development model inflict any problems on the
individual family local society?
RESPONDENTS PERCENTAGE
ECONOMIC 50
SOCIAL 25
POLITICAL 10
CULTURAL COST 15

Personal Gains

10%

25%
15% Economic
Social
Politcial
Cultural Cost

50%

61 | P a g e
Q4) Are there any gains for age region or a country if there active S-H-G and
microfinance organization?
RESPONDENTS PERCENTAGE
ECONOMIC 15
CASTE 25
CULTURE 30
CIVIL 30

Personal Gains

15%

30%
Economic
Caste

25% Politcial
Civil

30%

62 | P a g e
Q5) Has you faced any conflict to taking up of the job?
RESPONDENTS PERCENTAGE
YES 80
NO 20

Faced Conflict

20%

Yes
No

80%

63 | P a g e
Q6) Do you talk to your husband before you buy?
RESPONDENT PERCENTAGE
YES 80
NO 20

Before Buy

20%

Yes
No

80%

64 | P a g e
Q7) Does your Job improve your knowledge and personality?
RESPONDENT PERCENTAGE
YES 80
NO 20

Job Improves

20%

Yes
No

80%

65 | P a g e
Q8) How much to you spend in month on?

RESPONDENTS PERCENTAGE
KITCHEN BUDGET 80
ENTERAINMENT 10
LEISURE 10

Spending

10%

10%

Kitchen Budget
Entertainment
Leisure

80%

66 | P a g e
Q9) Does your husband understand your working problems?
RESPONDENTS PERCENTAGE
YES 80
NO 20

Working Problems

20%

Yes
No

80%

67 | P a g e
Q10) How do you compare the internet that you pay for your loan and that
offered by commercial banks?
RESPONDENTS PERCENTAGE
MORE 80
LESS 20

Compare to Pay

20%

More
Less

80%

68 | P a g e
Q11) Have you subscribed to any insurance with any of the MFI operating in
Kikuyu?

RESPONDENTS PERCENTAGE
YES 80
NO 20

Subscribe Insurance

20%

Yes
No

80%

69 | P a g e
Q12) How often do members of group default on loans?
RESPONDENTS PERCENTAGE
VERY OFTEN 70
OFTEN 10
RARELY 10
VERY RARELY 10

Group Defualt Loan

10%

10%
Very Often
Often
10%
Rarely
Very Rarely
70%

70 | P a g e
Q13) Do you won a saving account with any MFI operating Kikuyu?
RESPONDENTS PERCENTAGE
YES 80
NO 20

Saving Account

20%

Yes
No

80%

71 | P a g e
Q14) How often do you transact through the MFIS in Kikuyu as receiving and
making payments money transfer?
RESPONDNETS PERCENTAGE
YEARLY 40
MONTHLY 20
WEEKLY 20
OTHERS 20

MFIS

20%

40% Yealy
Monthly
Weekly
20% Others

20%

72 | P a g e
Q15) Do you think microfinance is a powerful instrument to reduce the povery
level of the country?
RESPONDENT PERCENTAGE
YES 80
NO 20

Microfinacne

20%

Yes
No

80%

73 | P a g e
Q16) How microfinance provides financial literacy to the women
entrepreneurs?
RESPONDENTS PERCANTAGE
MICROFINANCE EMPOWRING 80
FEMALE
WORLD FINANCE ENTERPRISES 20

Microfinance Finance

20%

Empowring Females
World Finance

80%

74 | P a g e
Q17) How do you think microfinance develops skills to start to start business?
RESPONDNET PERCENTAGE
YES 80
NO 20

Develops to Start

20%

Yes
No

80%

75 | P a g e
Q18) The role of divorce has reduced as a result of women investing with credit
from MFIS?
RESPONDENS PERCENTAGE
SOCIAL 80
CULT URAL 20

Divorced Reduced

20%

Social
Cultural

80%

76 | P a g e
Q19) How do you compare your standard of living before and after starting to
borrow loans from MFIS?
RESPONDNET PERCENTAGE
HAS IMPORVED 50
HAS DETERIORATED 20
HAS REMAINED THE SAME 30

Comparte

20%
30%

Has improved
Had detirorated
Remained Same

50%

77 | P a g e
Q20) How do you compare the retirement ship between you and your husband
before and after investing loan borrowed from MFIS?
RESPONDENTS PERCENTAGE
HAS WORSENED 80
HAVED IMPROVED 10
HAS REMAINED THE SAME 10

Compare Retirement

10%

10%

Has Worsened
Have improved
Has Remaied the same

80%

78 | P a g e
Q21) Has the relationship between you and your husband improved after
investing in business after acquiring loan form MFI?
RESPONDENTS PERCENTAGE
YES 80
NO 20

Relatinship between MFI

20%

Yes
No

80%

79 | P a g e
Q22) Are there any gains for the family in which women is engaged in self help
group?
RESPONDENTS PERCENTAGE
ECONOMIC 35
CULTURAL 15
CASTE 25
CIVIL RIGHTS 25

a) Economic
b) Cultural
c) Caste
d) Civil rights

Family Gain

25%
35%
Economic
Social
Politcial
Cultural Cost

25%
15%

80 | P a g e
Q23) The most important factor women empowerment?
RESPONDENTS PERCENTAGE
THE RIGHT TO EDUCATION 80
THE MOST IMPORTANT 10
EMPOWRING
THE KNOWLEDGE SKILLS 10

Important Factor

10%

10%

The right to education

The most important empowring
The knowledge skills

80%

81 | P a g e
Q24) What are the three factors of women empowerment?
RESPONDENT PERCENTAGE
EDUCATION 50
SKILL 25
DOMESTICE WORK SHARING 10
FAMILY SUPPORT 15

a) Education
b) Skill
c) Domestic work sharing
d) Family support

Factors

15%

Education
10%
Skill
50%
Domestice Work Sharing
Family Support

25%

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Q25) How microfinance loan empower the women?
RESPONDENTS PERCENTAGE
FINANICAL BACKING 50
NEED TO START BUSINESS 25
CONFIDENCE IMPROVES 10
DECISION MAKING 15

Finance emporwer

15%

Financial Backing
10%
Need to start business
50%
Confidence improve
Decision making

25%

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FINDINGS, SUGGESTIONS AND CONCLUSIONS

FINDINGS
 With the help of relationship data we can see that there is more percentage of women
SHGs out of total SHGs. So that is good indicator for women entrepreneur.
 The loan distributed data show increase the % of loan amount to women as compare
to last year. This show the economic development of women entrepreneur.
 The savings of SHGs also increasing year by year. This shows that financially
women’s are becoming stronger.
 From the current situation we can understand that today the main focus of micro
finance industry is to empower the woman that’s why more loans are provided to
woman and on easy terms.
 There are many challenges face by women to doing the business as entrepreneur like
lack of capital, networking problems etc. But these challenges can be overcoming
with the help of Provide micro credit for livelihood support and to micro enterprises
development, establishing sources of credit.
 Under microfinance concept the bank has facing many risk such as financial risk,
operational risk and strategic risk.
 In total risk we can see, 49% of financial risk it includes 22.05% of credit risk,
14.70% liquidity risk and 12.25% of market risk. 28% of operational risk it includes
14% of transaction risk, 5.60% of fraud risk and 8.40% of legal & compliance risk.
23% strategic risk it includes 9.20% of governance risk, 6.90% reputation risk and
6.90% external business risk.
 We can find the micofinance risk management process taken by the bank. By
applying those steps bank is try to reduce the risk.

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SUGGESTIONS
 Continue and time to time consultation and education programs should be conducted
by the bank for the beneficiaries in order to teach them on how to manage and utilize
the loan provided by bank.
 The bank has to conduct monthly meeting for all SHG members not only for one or
two members of SHGs. By conducting the meeting bank manager should take each
member opinion about group representative such as relationship with each group
member, is she take her responsibility seriously etc.
 Table No. 4.6 represents the proportion of financial risk faced by the bank. Under this
credit risk leads to loss of principle and interest. So the bank has to follow the strict
loan repayment process. It should give the strict direction to the SHGs to repay the
loan amount at correct time without any capital due.
 Bank should maintain sufficient cash reserves on hand to reduce the liquidity risk
under operational risk.
 Bank employees should maintain good relationship with customers to build good
reputation.
 Making a proper follow up to the beneficiaries regarding the loan provided by the
bank so as the bank can recover their dues on time.
 Initiating and rewarding of innovative work performing by the individual. This will
motivate the beneficiaries to perform better and repaying their loan on time.

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 CONCLUSION
Traditionally women have been marginalized. A high percentage of women are among
the poorest of the poor. Microfinance activities can give them a means to climb out of
poverty. Microfinance could be a solution to help them to extend their horizon and offer them
social recognition and empowerment. Numerous traditional and informal system of credit that
was already in existence before micro finance came into vogue. Viability of micro finance
needs to be understood from a dimension that is far broader- in looking at its long-term
aspects too.
A conclusion that emerges from this account is that micro finance can contribute to
solving the problems of inadequate housing and urban services as an integral part of poverty
alleviation programmes. The challenge lies in finding the level of flexibility in the credit
instrument that could make it match the multiple credit requirements of the low income
borrower without imposing unbearably high cost of monitoring its end use upon the lenders.
A promising solution is to provide multipurpose lone or composite credit for income
generation, housing improvement and consumption support. Consumption loan is found to be
especially important during the gestation period between commencing a new economic
activity and deriving positive income.
India is the country where a collaborative model between banks, NGOs, MFIs and
Women’s organizations is furthest advanced. It therefore serves as a good starting point to
look at what we know so far about ‘Best Practice’ in relation to micro-finance for women’s
empowerment and how different institutions can work together.
It is clear that gender strategies in micro finance need to look beyond just increasing
women’s access to savings and credit and organizing self-help groups to look strategically at
how programmes can actively promote gender equality and women’s empowerment. On the
other hand, thank to women's capabilities to combine productive and reproductive roles in
microfinance activities and society has enabled them to produce a greater impact as they will
increase at the same time the quality of life of the women micro-entrepreneur and also of her
family.

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 BIBLIOGRAPHY

Articles
 S.Sarumathi and Dr.K.Mohan, “Role of Microfinance in women’s Empowerment”,
Journal of Management and Science, Vol.1, No.1, Sep 2011.
 Economic and Social Affairs, “Microfinance as a poverty Reduction Tool-A critical
Assessment”, DESA Working paper No.89, Dec 2009.
 Susanna Khaval, “Microfinance: creating opportunities for the poor”?, Academy of
Management Perspectives (2010).
 Padmalochan Mahanta, Gitanjali Pandu and Sreekumar, International Journal of
Marketing, Financial Services and Management Research, Vol.1, Issue 11, Nov 2012.
 Dr. Dirk Steinwand, “A Risk Management Framework for Microfinance Institutions”,
July 2000.
 Dan Norell, “How To Reduce Arrears In Microfinance Institutions”, Journal of
Microfinance, Vol.3
 Prof. V. Narasimha Rao and Dr. M. Venkateshwara, ‘ Financial Inclusion: A study on
Opportunities and Challenges of Microfinance’, Vol, Issue 7, July 2013.
 Jayati Ghosh, ‘Microfinance and the Challenges of financial inclusion for
development’ Cambridge Journal of Economics, 2013.

Websites
 www.google.com
 www.sbm.co.in
Bank records
 Annual report
 SHGs records

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Name
Age
Gender
Email id
Occupation
Income
Qualification
Q1) Does Microfinance has the ability to empower women? In what way are
women empowered?
a) If Yes
b) If No
Q2) Are there any personal gains for the women who are partial patign in a self
help group?
a) Economic
b) Social
c) Political
d) Cultural Cost
Q3) Does the microfinance development model inflict any problems on the
individual family local society?
a) Economic
b) Social
c) Political
d) Cultural
Q4) Are there any gains for age region or a country if there active S-H-G and
microfinance organization?
a) Economic
b) Caste
c) Culture
d) Civil
Q5) Has you faced any conflict to taking up of the job?
a) Yes
b) No
Q6) Do you talk to your husband before you buy?
a) Yes
b) No
Q7) Does your Job improve your knowledge and personality?
a) Yes

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 b) No
Q8) How much to you spend in month on?
a) Kitchen budget
b) Entertainment
c) Leisure
Q9) Does your husband understand your working problems?
a) Yes
b) No
Q10) How do you compare the internet that you pay for your loan and that
offered by commercial banks?
a) More
b) Less
Q11) Have you subscribed to any insurance with any of the MFI operating in
Kikuyu?
a) Yes
b) No
Q12) How often do members of group default on loans?
a) Very often
b) Often
c) Rarely
d) Very Rarely
Q13) Do you won a saving account with any MFI operating Kikuyu?
a) Yes
b) No
Q14) How often do you transact through the MFIS in Kikuyu as receiving and
making payments money transfer?
a) Yearly
b) Monthly
c) Weekly
d) Others
Q15) Do you think microfinance is a powerful instrument to reduce the povery
level of the country?
a) Yes
b) No
Q16) How microfinance provides financial literacy to the women
entrepreneurs?
a) Microfinance empowering Female

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 b) World Finance Enterprises
Q17) How do you think microfinance develops skills to start to start business?
a) Yes
b) No
Q18) The role of divorce has reduced as a result of women investing with credit
from MFIS
a) Social
b) Cultural
Q19) How do you compare your standard of living before and after starting to
borrow loans from MFIS?
a) Has improved
b) Has deteriorated
c) Has remained the same
Q20) How do you compare the retirement ship between you and your husband
before and after investing loan borrowed from MFIS?
a) Has worsened
b) Haved improved
c) Has remained the same
Q21) Has the relationship between you and your husband improved after
investing in business after acquiring loan form MFI?
a) Yes
b) No
Q22) Are there any gains for the family in which women is engaged in self help
group?
a) Economic
b) Cultural
c) Caste
d) Civil rights
Q23) The most important factor women empowerment?
a) The right to education
b) The most important empowering
c) The knowledge skills
Q24) What are the three factors of women empowerment?
a) Education
b) Skill
c) Domestic work sharing
d) Family support

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Q25) How microfinance loan empower the women?
a) Financial Backing
b) Need to start business
c) Confidence improves
d) Decision making

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