Microfinance Models-Presentation by P.G

MICROFINANCE MODELS:
COMPARATIVE STUDY
PRESENTATION BY: PARTHA GHOSH

SCHEME OF PRESENTATION
vDE FINING MI CR OF INANC E
vGL OBAL M IC ROFIN AN CE

SCE NAR IO
vINDIAN CO NTE XT
vMICR OFI NAN CE M ODELS:

DISCUSS ION
vCOMP AR ISION BE T WE EN THE

MODELS
vTHE WAY AHE AD

MICROFINANCE: WHAT IS IT?
AS PER THE DEFINITION OF INTERNATIONAL LABOUR
ORGANISATION (ILO),
“MICROFINANCE IS AN ECONOMIC DEVELOPMENT APPROACH

THAT INVOLVES PROVIDING FINANCIAL SERVICES THROUGH
INSTITUTIONS TO LOW INCOME CLIENTS”
GLOBAL MICROFINANCE SCENARIO
vTHE EAR LIEST MI CROF INA NC ING MO DE L IS SUPP OSE D TO BE “THE
BANK PE RK EDIT AN RA KYAT” , WHICH WAS SET UP IN THE YEAR 1895, IN
INDO NE SI A . IT HAD CLOSE TO 9, 000 UNI TS.
vAB DUL HAMEED KHAN FOUNDE D THE “ACA DEM Y FOR RURAL
DE VELOPM ENT ” IN TRODUC ED THE RE VOLUT IO NAR Y IDE A OF
MIC ROCRED IT IN THE YEAR 195 9.
vIN 19 71 , “AL WHIT TAK ER” AND “D AVID B AS SAU” EST ABL ISH ED
“O PPU RTUNI T Y INT ERNA TIO NAL ”.
vIN 19 73 , “ACCION” IN TERNA TIONAL START ED FOCUS SING ON

ECONO MI C OPPURT UNI TIES FOR PO OR PEOPL E.
vIN 19 79 , “MUHAM ME D YU NUS ” FOUNDE D THE GRA MEEN BANK .
vIN THE 198 0s, “F IC NA ” INT ERNA TIONAL START ED MIC RO-LE ND ING TO
RURA L POORS IN BO LIV IA .
INDIAN CONTEXT
vIN OUR COUNT RY “NABARD” FINANC ES MORE THAN 500 BANK S THAT
ON- LE ND FU NDS
TO SEL F -HELP GR OUP S.
vIN 199 5, WORKING GR OUP ON CREDI T TO THE PO OR THROUGH SHGs

AND NGO s , WAS
FORME D BY “NA BARD”.
vTHE “NA TIONA L MIC ROFIANC E TASK FOR CE” WAS CREA TED IN 1999.
vIN 200 2, A “ WORK ING GR OUP ON FINANC IAL FL OWS TO INF ORMAL
SECT OR” WAS SET UP BY THE PRI ME MINISTER OFFI CE.
vIN 200 5, “N AB AR D” SET UP A “MIC ROFINANC E DE VELOPM ENT EQUI T Y

FUND”.
vIN ADDIT IO N TO THE SE THE STATE GOVERNM ENT OF VARI OUS STATES
LIK E RAJ AST HAN,
MICROFINANCE MODELS
vTHE SHG-BANK LINKAGE MODEL
vTHE MFI INTERMEDIATION MODEL
vTHE “ICICI” BANK PARTNERSHIP MODEL
vTHE TECHNOLOGY ORIENTED ASSISTANCE MODEL

BY
“PRADAN”
THE “SHG-BANK LINKAGE MODEL”
BANK Loan at
9%
SHG
No Group
liability NGO formation
/linkage
7
EVALUATION OF THE MODEL
FACTS AND FIGURES:
vTh e cumulativ e num be r of S HGs link ed has g rown in t he last fiv e
years, t o ac hie ve an outreac h o f ab out 3 1 million families t hrough
women's me mbe rsh ip in ab out 2 .2 millio n SHGs by Mar ch 20 06.
vAbou t 1 4 millio n po or h ouseh olds h ave bee n reac hed so f ar .

RECENT TRENDS IN THE GROWTH OF THE SBLP
IS THE GROWTH LEVELLING OFF???

So ur ce: NAB AR D an nual rep or ts , an d data she et
for 2005- 06
So ur ce: NAB AR D an nual rep or ts, an d data shee t
for 2005- 06
So ur ce: NAB AR D an nual rep or ts, an d data shee t
for 2005- 06
INTER-STATE IMBALANCES ARE GRADUALLY BEING
RECTIFIED??
Gr owth of SHGs link ed in 13 Pr ior ity Sta tes
So ur ce: NABAR D ann ual repo r ts

The Light and Shades Study
vA maj or bre akthrou gh in ou r un der sta ndi ng of the SHG bank li nk ing
mod el ca me with the release in 200 6 of the stu dy "Self Help Gr ou ps in
Ind ia: The Li ghts and Sha des of SHGs by EDA in ass oc ia ti on with APMAS
(E DA and APM AS (2006 )).
vThe stu dy wa s carr ied out in fou r sta tes, two sou the rn (AP an d
Ka rn ata ka) an d tw o nor the rn (O rissa and Raj as than ). In all, 214 SHGs
in 108 villag es in 9 distr ict s we re se le ct ed. Stu dy wa s cond uct ed du ring
Octobe r 2004 to Ma y 2005.
vThe stu dy enco mpa ss ed many par amet er s lik e demogra phi cs of t he
SHGs, the soci al rol e of membe r s and the financ ial sta bility of the
SHGs.
THE MFI INTERMEDIATION MODEL
Bank MFI JLG Group
Loan at a Loan at
9% 20%
16
PR OGR ES S UND ER THE MF I MOD EL
FACT S AND FIGURES:
vThe fir st we ll known MFI, SEWA , was inco rpor ated as an urb an
co op era ti ve ba nk in 19 74.
vGra meenBan k of Ba ngladesh is a su cc essfu l example of MF I, whi ch by

now has deve lop ed Its elf into a fu ll-fle dged finance insti tu ti on.
vIn In dia apex banks and NBF Cs finance the MFIs and NGOs base d on
thi s mo del. Bu t man y of NGO s ha ve the ms elve s be co me NB FCs.
REPORT OF RESULTS…..SIDE-BY-SIDE STUDY
vSa-D han foun dati on of Ind one si a ha s by Ma rch 20 06, member shi p
gro wn to,
162 MFIs , of whi ch 140 ha d ac ti ve cr edit pror gra mmes. They ha d an
esti mated por tf ol io ou ts ta nd ing of Rs 1 ,600 cror e.
vSa-D han laid down som e par amet er s on whi ch it evaluat ed the MFIs
in Indi a who sub mitt ed their audited finan cial re por ts to Sa-Dhan in
the year 20 04 and 2005 . The repor t wa s publishe d in the year 20 05
(S eptembe r) .
vCove rage e xpanded fr om 42 MFIs in the 2nd (2004 ) repor t to 74 MFIs

su bmitti ng financ ial infor ma ti on on the basi s of aud ited balance
she ets for the year end March 200 5.
UNATTRACTIVENESS OF THE MFI
INTERMEDIATION MODEL…THE A.P
EXPERIENCE
THE CRIS IS… ..Exp lained.
UNDE RL YING CA US ES:
vRus h to grow at al l cost
vIn tere st rat es
vCoe rcive col lecti on pra cti ce s
vOve r-le ndin g
vUn attr acti ve featu res of the SH G mod el for

bor rower s
vLac k of Co nta ct an d Commu nicat ion

MFIs PAVING THEIR OWN ROAD TO BECOME
EFFICIENT
So ur ce: rep or t on evolut ion of MFI s by Raven Sm ith , Tuf ts
Univ ersit y, 2006
So ur ce: rep or t on evo lut ion of MFI s by Raven Sm ith , Tuf ts
Univ ersity , 2006
THE ICICI BANK PARTNERSHIP MODEL
Loan at 9%
Bank MFI JLG Group
Interest
charged:
Servicing 20%
FLDG of fees of
10% 11%
26
GAPS ADDRESSED BY THE MODEL
vTo se para te the ris k of the MF I fr om the risk inhere nt in the
microf inanc e
por tf olio.
v To provide a mecha nism for bank s to inc enti vize par tn er

MFI s con ti nuou sl y.
v To deal with the inability of MF Is to provide ri sk capit al in

KEY CHARACTERISTICS
vLoa n con tr ac ts dir ectl y bet we en ban k and bo rro we r
vAl ignment of ince nt ive s with a fir st- los s guara ntee str uct ur e
vTra nsf er of impl ic it ca pita l fr om the bank to the MFI throu gh

an ove rdr af t
fa cility .
v Se cur iti zati on – paving the wa y for ca pita l markets acce ss
vCredit enhancement for microfinance portfolios.

BANK FINANCING OF MFIs…..RBI COMES UP WITH
TWO MODELS
vIn 2004, RBI appo inted an internal group to examine wa ys of

incr easi ng financi al inclusi on and ca me ou t with a repor t in Jul y 2005
(t he Kha n Co mmitt ee Repor t)
vRB I issu ed a circul ar in Janua r y 2006 pro vidin g for the use of
sp ecified agenci es incl uding MFI s as int erm ediarie s in the provisi on of
bank ing and fin ancial se r vi ce s.
vThe interm edi aries were to be of two ki nd s, Busi ness Faci lita tor s and
PRADAN’S COMPUTER MUNSHI MODEL
PR AD AN HAS CO ME U P W ITH THE M ODEL O F CO MPUTER

MUNSHI . THI S I S AN APPR OACH T O R EAP THE BE NEFITS OF
INF ORMATI ON TEC HNOL OGY AND COMPUTER BAS ED
ACC OUNTI NG ME THO DS I N THE MAN AGIN G OF TH E S HGs
KEY FINDINGS FROM THE ASSESMENTS
THE SHG-NGO -BANK LIN KA GE MODE L SE EMS TO BE A BETTER MAODEL IN

TERMS OF
TRAN SPERA NC Y OF LENDI NG TO GROUP S.
THE MF I INT ERME DI ATION MO DEL SEEMS TO BE PL AGUE D WIT H MANY

PR OBLEM S.
RB I HAS A FEW AP PRE HENSI ONS ABOUT THE BAN K -MF I PART NERS HIP
MO DE L
THE KHAN CO MM IT TEE PROPO SED BU SINE SS FACILI TATOR AND BUS INE SS
CORRES PONDE NC E MO DEL LACKS SHE EN.
FINANC IN G BY VCs AND INV ESTORS IN THE CA PITAL MARK ET S MA Y SOON

DR Y UP IF THE
INV ESTMEN T OPT IO N BECOMES LESS LUC RA TIVE
THE WAY AHEAD
THIS MO DE L OF INTEGRA TED RURAL BU SINE SS DE VELOP MENT MA Y
HOLD PR OMI SE
IN FUT URE .
RUR AL
BUSINE SS
SPONSORED BY CORPORATES
INNO VATIO
N FU ND
BUS INESS IDE A/ INNO VATIV E

TECHNO LOGY
CORP ORA T
ES
BANKs/ NBFCs
IN NO VATION &
BRA ND
NC
I N A
F
E
FORM
LINK ATION &
AGE NGOs/
NPOs
THANK YOU

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MICROFINANCE MODELS:

PRESENTATION BY: PARTHA GHOSH

vDE FINING MI CR OF INANC E

vGL OBAL M IC ROFIN AN CE

vMICR OFI NAN CE M ODELS:

vCOMP AR ISION BE T WE EN THE

vTHE WAY AHE AD

“MICROFINANCE IS AN ECONOMIC DEVELOPMENT APPROACH

vIN 19 73 , “ACCION” IN TERNA TIONAL START ED FOCUS SING ON

vIN 19 79 , “MUHAM ME D YU NUS ” FOUNDE D THE GRA MEEN BANK .

vIN 199 5, WORKING GR OUP ON CREDI T TO THE PO OR THROUGH SHGs

vIN 200 5, “N AB AR D” SET UP A “MIC ROFINANC E DE VELOPM ENT EQUI T Y

vTHE SHG-BANK LINKAGE MODEL

vTHE MFI INTERMEDIATION MODEL

vTHE “ICICI” BANK PARTNERSHIP MODEL

vTHE TECHNOLOGY ORIENTED ASSISTANCE MODEL

vAbou t 1 4 millio n po or h ouseh olds h ave bee n reac hed so f ar .

IS THE GROWTH LEVELLING OFF???

So ur ce: NABAR D ann ual repo r ts

Bank MFI JLG Group

FACT S AND FIGURES:

vGra meenBan k of Ba ngladesh is a su cc essfu l example of MF I, whi ch by

vCove rage e xpanded fr om 42 MFIs in the 2nd (2004 ) repor t to 74 MFIs

UNDE RL YING CA US ES:

vRus h to grow at al l cost

vIn tere st rat es

vCoe rcive col lecti on pra cti ce s

vOve r-le ndin g

vUn attr acti ve featu res of the SH G mod el for

vLac k of Co nta ct an d Commu nicat ion

Bank MFI JLG Group

v To provide a mecha nism for bank s to inc enti vize par tn er

v To deal with the inability of MF Is to provide ri sk capit al in

vLoa n con tr ac ts dir ectl y bet we en ban k and bo rro we r

vTra nsf er of impl ic it ca pita l fr om the bank to the MFI throu gh

v Se cur iti zati on – paving the wa y for ca pita l markets acce ss

vCredit enhancement for microfinance portfolios.

vIn 2004, RBI appo inted an internal group to examine wa ys of

PR AD AN HAS CO ME U P W ITH THE M ODEL O F CO MPUTER

THE SHG-NGO -BANK LIN KA GE MODE L SE EMS TO BE A BETTER MAODEL IN

THE MF I INT ERME DI ATION MO DEL SEEMS TO BE PL AGUE D WIT H MANY

FINANC IN G BY VCs AND INV ESTORS IN THE CA PITAL MARK ET S MA Y SOON

BUS INESS IDE A/ INNO VATIV E

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