MEDI-CAPS UNIVERSITY

INDORE

PROJECT REPORT
ON
“A Critical Study Of Micro Finance Institutions & It’s
Growth In India”
Submitted as a partial fulfillment for
The Degree Of Bachelor Of Commerce
To Medi-Caps University, Indore
Guided By – Submitted By –
Mrs. Meenal Sharma Akash Tripathi (2001530)
Bhumika Jaiswal (2002732)
Manisha Bhadekar (2001065)
 Madhav Sarkar (2000950)

PREFACE
BBA students of Medi-caps University are required to
undergo Research Project as an integral part of
curriculum. To accomplish this project as “A Critical
Study Of Microfinance Institutions & It’s Growth In
India” there is the need to become familiar with the
project.

It can be possible through theoretical inputs as well as

practical exposure in which our practical knowledge is
helpfully acquired through the guidance of our
supervisor.

We have also done this study from secondary sources.

 CERTIFICATE BY THE SUPERVISOR

This to certify that Mr./Mrs ……………..has executed the

dissertation entitled “A Critical Study Of Microfinance
Institutions & It’s Working In India” under my
supervision and the report submitted therewith is the
result of work done under my supervision.

Place:
Date: Mrs. Meenal Sharma
Supervisor & Class Coordinator

Place:
Date:. External Viva Examiner
 DECLARATION BY THE STUDENT

This is to certify that the dissertation entitled “A

Critical Study Of Microfinance Institutions & It’s
Growth In India” is a bonafide work done by
me………………… (Name of the Student with
Enrollment No.), under the supervision of
Prof/Dr./Mr………………. in partial fulfillment for the
degree of Bachelor of Commerce by Medi-Caps
University, Indore.

Place: (Signed)

Date: Name:

Enrollment No.:
 ACKNOWLEDGEMENT
We grateful to our Guide Mrs. Meenal Sharma Supervisor and Class
Coordinator of Medi-Caps University, Department of Commerce,
Indore for her precious guidance throughout our dissertation work.
She has devoted her valuable time and motivated us at every step
towards completing this dissertation. The study would not have been
possible without her generous guidance.
We are deeply indebted to (Name of the Dean), Dean Commerce,
Medi-Caps University, Indore for his/her continuous support and
blessings. His/Her support has rendered me great help towards this
dissertation work.
We also express our sincere gratitude to our family members, friends
and respondents for extended support throughout the dissertation
work.

Akash Tripathi (2001530)

Bhumika Jaiswal (2002732)
Manisha Bhadekar (2001065)
Madhav Sarkar (2000950)

INDEX
 Preface
Certificate By The Supervisor
Declaration By The Student
Acknowledgement
1. Introduction
1.1 Overview
1.2 Rationale Of The Study
1.3 Objectives Of The Study
2. Review Of Literature
3. Research Methodology
4. Data Analysis And Interpretation
5. Conclusion
6. Limitations Of The Study
7. Scope Of The Study
8. References

1. INTRODUCTION
1.1 OVERVIEW
1.1.1 The Journey Of Microfinance In India
1.2 RATIONALE OF THE STUDY
At least in India, there does not seem to be any working
model of analyzing the financial performance and thereby
sustaining of microfinance institutions. This problem is
compounded by the lack of a committed legislation on
working and management of microfinance institutions.
The lack of a regulatory mechanism for financial
disclosures by microfinance institutions also abets the
problem. The present study is an attempt to study the
importance of microfinance and to analyze the
performance of microfinance institutions operating in
India. It assumes significance because it is imperative that
these institutions be run efficiently given the fact that
they are users of marginal and scarce capital and the
intended beneficiaries are the marginalized sections of
society. MFIs must be able to sustain themselves
financially in order to continue pursuing their lofty
objectives, through good financial performance.

1.3 OBJECTIVES OF THE STUDY

1. To understand the concept and delivery models of
microfinance in India.
2. To study the role and importance of microfinance in
India.
3. To examine the current status and performance of
microfinance institutions in India.

2. REVIEW OF LITERATURE
Kumar Vipin et. al. (2015) study concluded that the
SHG’s and MFI’s are playing a vital role in delivery of
microfinance services which leads development of poor
and low income people in India. However, slow progress
of graduation of SHG members, poor quality of group
functioning, dropout of members from groups etc., have
also been reported various study findings in different parts
of the country, which need to be taken into account while
designing the road map for the next phase of the SHG
programme.
Nikita (2014) study concludes that first time in the year
2012-13 after the launch of SHGs BLP there is a decline
in the number of S HGs who’s saving linked with
banks. The study also finds out there was growth in
the loan outstanding of SHG and which was responsible
for increases in NPAs. At last it is found out that the
major share belongs to commercial banks when the
agency wise loan issued to MFI. He suggested that steps
should be taken to improve the performances of
programs launched under Microfinance time to time.
Mahanta et. Al. (2012) Study revealed that lending to
the poor through microcredit is not the end of the problem
but beginning of a new era. If effectively handled, it can
create miracle in the field of poverty alleviation. But it
must be bundled with capacity building programs.
Government cannot abdicate its responsibility of social
and economic development of poor and downtrodden.
The absence of any special skills with the clients of
microcredit, the fund is being used in consumption and
procurement of non-productive assets. Hence it is very
important to provide skills development training
program like handicraft, weaving, carpentry, poultry,
goat rearing, masonry, bees farming, vegetable farming
and many other agricultural and non-agricultural training.
Government has to play proactive role in this case.
People with some special skills have to be given priority
in lending microcredit. These clients should also be
provided with post loan technical and professional aid for
success of their microenterprises. If government and MFIs
act together then microcredit can play a great role in
poverty alleviation.
Maruthi Ram Prasad, Sunitha and Laxmi Sunitha
(2011) conducted a study on Emergency and Impact of
Micro-Finance on Indian Scenario. After the pioneering
efforts by Government, Banks, NGOs, etc the
microfinance scene in India has reached in take off stage.
An attempt could be initiated to promote a cadre of new
generation micro-credit leaders in order to strengthen the
emergence of Micro-Finance Institution (MFIs), so as to
optimize their contribution towards the growth of the
sector and poverty alleviation. Each Indian state could
consider forming multi-party working group to meet
with microfinance leaders and have a dialogue with them
about how the policy environment could be made more
supportive and to clear up misperceptions. With one state
leading the way, we need to build on a successful model.
By unleashing the entrepreneurial talent of the poor,
we will slowly but surely transform India in ways we
can only begin.

3. RESEARCH
METHODOLOGY

Our research methodology requires gathering

relevant data from the specified documents and
compiling databases in order to analyze the material
and arrive at a Comparison between deposit services
of banks and other financial institutions. In this
research we will use primary data as well as
secondary data. Primary data will be collected by
Questionnaire and focused group interviews
conducted by different institutions and organizations
and Secondary Data will be collected by reference
books, journals and internet.

4. DATA ANALYSIS AND

INTERPRETATION
Table 1 presented progress under MFI-Bank
linkages programme. The number of MFIs availing
loans from banks during the year 2012-13 decreased
over the respective previous year. The number of
MFIs availing loans from the banks during the year
2013-14 increased by 28 per cent over the year
2012-13. However there is substantial increase in the
number of MFIs availing loans from banks during
the year 2015-16 and 2016-17 over the previous
year. it increased from 9.8 per cent to 257.6 per cent.
The total loans to MFIs by banks increased during
2012-13, 2013-14, 2014-15 and 2015-16 over the
previous year respectively. It increased by about
50.6, 31.2, 47.7 and 36.9 per cent. The total loans
to MFIs by banks decreased during 2016-17 by 7.2
per cent over the previous year. The loan
outstanding against MFIs increased all the
subsequent years over their previous years. It
increased by 13.7 and 14.3 per cent in 2015-16 and
2016-17 over the previous year. The fresh loan as
percentage to loan outstanding has been increased all
the subsequent years over the previous year. Thus it
is clear that MFIs gaining confidence of clients as
well as with the lending institutions.
Client outreach in various states is presented in Table 2.
Out of total client’s base of 295 lakh in 2017,
Karnataka state contributed highest number of clients
base (23.16%) followed by Tamil Nadu (10.93 %). The
contribution of Chandigarh, Jammu & Kashmir and
Andaman was least (0.01%). Comparison of client’s
base of different states/UTs in 2017 with 2016 has
declined, except Assam, Arunachal Pradesh, Nagaland,
Jammu & Kashmir and Andaman. The highest increase
was in Andaman (267%) followed by Jammu & Kashmir
(17 %). The highest decline was in Andhra Pradesh
(86%) followed by Chandigarh (82%)
Rural-urban distribution of MFI borrowers is shown in
Table 3 and figure 1. Indian microfinance was basically
considered as a rural phenomenon. The share of rural
clientele was 67 per cent in 2013 which decreased to 56
per cent in 2014 and has drastically reduced to 33 % in
2015. During the next year i.e. in 2016 the share of rural
client slightly increased to 38 per cent. It is first time
that urban client base outpaced rural client base.
However, in the next year i.e. in the year 2017, significant
improvement was noticed in the share of rural client
which increased to 61 per cent. In 2017, the trend of rural
to urban is the reverse of trend of 2016 because of
exclusion of 6 SFBs. One of the key finding from this
study shows that small sized of MFIs are rural centric.
Purpose of Loan
Traditionally, MFIs have been lending for both
consumption and productive purposes. It is believed that
poor people use their loans for their emergency and
consumption needs more than for livelihoods. In 2015,
RBI regulation stipulated that a minimum of 50% of the
MFI loans are to be deployed for income generating
activities.
Table 4 and figure 2 shows that the proportion of
income generation loan was 91 per cent during the
year 2013 which reduced to 80 per cent during the
year 2014. The proportion of income generation
loan remained same during the next year i.e. 2015.
During the year 2016 it increased up to 94 per cent.
In the year 2017 the proportion of income generation
loan to non-income generation loan is 85:15.
Agriculture, animal husbandry and trading are
major sub-sectors where income generation loans
are deployed. Non- income generation loans are
used for consumption, housing, education, water
& sanitation, health, etc. As high as 31 per cent of
the total income generating loan was disbursed for
trading and small business followed by agriculture
30 per cent and animal husbandry (22 %). The rest
of the proportion of income generating loan was
disbursed to transport, cottage, handicraft and other
activities.

MAJOR FINDINGS
 MFIs availing loans from the banks during the year
2013-14 increased by 28 per cent over the year 2012-
13. However there is substantial increase in the
number of MFIs availing loans from the banks during
the year 2015-16 and 2016-17 over the previous year.
It increased from 9.8 per cent to 257.6 per cent.
 The total loans to MFIs by banks increased during
2012-13, 2013-14, 2014-15 and 2015-16 over the
previous year respectively. It increased by about
50.6, 31.2, 47.7 and 36.9 per cent. The total loans to
MFIs by banks decreased during 2016-17 by 7.2 per
cent over the previous year.
 The loan outstanding against MFIs increased all the
subsequent years over their previous years. It
increased by 13.7 and 14.3 per cent in 2015-16 and
2016-17 over the previous year. The fresh loan as
percentage to loan outstanding has been increased all
the subsequent years over the previous year.
 The Client’s base of different states/UTs in 2017 with
2016 has declined, except Assam, Arunachal
Pradesh, Nagaland, Jammu and Kashmir and
Andaman. The highest increase was in Andaman
(267%). The least decline was in Odisha (2%).
 The share of rural clientele was 67% in 2013 which
decreased to 56% in 2014 and has drastically reduced
to 33% in 2015. In the next year i.e. in 2016 the share
of rural client slightly increased to 38%. One of the
key finding from this study shows that small sized of
MFIs are rural centric.
 The proportion of income generation loan remained
same during the next year i.e. 2015. During the year
2016 it increased up to 94%. In the year 2017 the
proportion of income generation loan to non-income
generation loan is 85:15.
 5. CONCLUSION

The importance of microfinance in the developing

countries like India can not be undermined it play a
vital role for socio-economic upliftment of poor and
low income peoples. Since 1990s, poverty reduction
has taken priority at both national and international
development levels. Within this framework, various
initiatives have been taken by government.
Microfinance has caught the attention as an effective
tool for poverty reduction and socio- economic
development. Hence Microfinance can play a vital
role for improving the standard of living of poor.
The economic development of any country is
severely influenced by the availability of financial
services. Microfinance is the form of a broad range
of financial services such as deposits, loans,
payment services, money transfers, insurance,
savings, micro-credit etc. to the poor and low
income individuals. A well-developed financial
system promotes investment opportunities in an
economy. Therefore it is necessary that govt. of
India have to focus on extending financial services
to both rural and urban to ensure sustainable and
inclusive growth. The functioning of Microfinance
institutions in India is playing an important role in
rural areas since last two decades. The central
government and RBI should take necessary
measurements to sustain the growth of the
microfinance sector in India. The concern state
governments also take necessary measurements to
create awareness among people to use the
services of Microfinance institutions to strengthen
their Economic status and improve their livelihood.

6. LIMITATIONS OF THE STUDY

 Most of the Information is collected from

secondary data.
  Difficulty in Data Collection.
 Time was the most critical limiting factor.
 Different Opinions are used in completion of
this project report.

7. SCOPE OF THE STUDY

This study aims at performance of microfinance
industries . It contains early data which helps
in understanding the positive and negative
impact.
This study helped us to get reality check where
actual check between classroom knowledge and
the real situation can be done. This study helped
us to different concept of microfinance.
This study also helped us to understand how
microfinance helps new industries to establish
and grow.
8. REFERENCES

www.indiamicrofinance.com.
www.rbi.org.in
http://study-material4u.blogspot.
http://www.legalservicesindia.com.
http://www.ukessays.com
https://www.rbi.org.in/scripts/PublicationsView.aspx?Id=10932
http://shodhganga.inflibnet.ac.in
http://indiamicrofinance.com.