Dissertation Report

On

“Micro-Finance”

Dissertation submitted to Sri Dev Suman University in Partial fulfillment of the

requirement for the award of

Bachelors of Business Administration

By

Urvashi Gupta
180200500012

Under the Supervision of

Ms. Khushboo Kukreti

Department of Management Studies

MIT, Dehradun

Mahadevi Institute of Technology

Uttarakhand Technical University
Dehradun-248001

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 Student‟s Declaration

Name: Urvashi Gupta

Roll No: 180200500012
Department of Management Studies
MIT Dehradun – 248001

Statement by the candidate

I hereby state that the dissertation entitled “Microfinance” submitted by me in partial

fulfillment of the requirements for the award of BBA degree, is my original work andthat
it has not previously formed the basis for the award of any other degree, Diploma,
Fellowship or other similar titles.

Date: Name: Urvashi Gupta

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 Guide‟s Certificate

Name of Guide: Ms. Khushboo Kukreti

Department of Management studies
MIT, Dehradun

This is to certify that the dissertation entitled “Microfianace” submitted by Ms. Urvashi
Gupta is a bonafide record of research work done by her under my guidance and
supervision.

Dr.Bhawna. K .Sindhwani Ms. Khushboo Kukreti

(Head Of Department) (Guide)

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 Acknowledgement

It is indeed a great pleasure to express my thanks & gratitude to all those people who helped me
during my dissertation project. This project would not have been materialized without the help
from my quarters.

I am thankful to Ms. Khushboo Kukreti faculty management at MIT, Dehradun for his
gratitudeduring my project and giving me full co-operation and also valuable information and
guidance,
without which it would not be possible for me to complete the manuscript.

I express a deep sense of gratitude to respected faculty member and my class mates for their

valuable contribution and suggestions. Their guidance suggestion & expertise have been a source

of inspiration & were very helpful to me during our project work

.

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 Contents

1. Introduction
2. Literature Review
3. Research Objectives
4. Research Methodology
5. Data Analysis and Interpretation
6. Findings and Conclusion

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 CHAPTER- 1

INTRODUCTION

Microfinance is a financial service that offers small loans, savings and insurance to
entrepreneurs and small business owners who don‟t have access to traditional
source of capital, like bank or investor. These types of financial services are
provided to those individual who usually lack the credit or resource to secure a
loan and are unlikely to get approval from traditional banks. The loans given under
microfinance are in small denomination. Loan to poor people by banks have many
limitations including lack of security and high operating cost. Microfinance is only
option for poor entrepreneur to raise fund. The ultimate goal of microfinance to
create financial inclusion and equality.
Micro finance in India is increasing rapidly. Micro finance is a powerful tool for
rural development. It has brought many changes in the lives of many rural poor
people. By providing loan to rural people in the rural regions, micro finance are
generating positive results and giving promise to the millions of poor through
providing credit. The SHG-Bank linkage and MFIs plays a major role for poor
people to access the financial services without any collateral security and improve
their standard of living. But in order to make the approaches more useful means for
poverty alleviation a sustainable rural development, there is a need for genuine
intervention by the promotional agencies particularly the banks and district credit
plan to create awareness and training. Looking at the number of customers, an orbit
of services and increase the interest of both formal and informal sector institutions,
in that location is enormous scope for the keeping up of micro finance
development in India.

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India‟s economic reforms in the beginning of the 1990s, a strong and financial
sector was considered necessary for accelerating the growth impetus in the country
and also for expanding the coverage of financial services in a sustainable manner.
The financial sector reform process placed more prominently on creating a strong,
vivacious and competitive banking system. The important step to bring
economically expelled people within the crease of the formal financial sector was
the promotion of microfinance in India. In order to ensure an accelerated rural
development in the country; in 1969 the Lead Bank Scheme was introduced by the
Reserve Bank of India. The Self help-group bank linkage programmed was
launched by NABARD in 1992, with procedure support from the Reserve Bank, to
sustain collective decision making, by the poor and provide „door step‟ banking.

Microfinance Institutions (MFIs) in India exist as NGOs and Non-Banking

Financial Companies .Commercial Banks, cooperative societies and Regional
Rural Banks are other large lenders have played an important role in providing
refinance facility to MFIs. Commercial Banks have also leveraged the Self-Help
Group direct to provide direct credit to group borrowers.

With financial inclusion budding as a major policy objective in the country,

Microfinance has occupied center stage as a promising mechanism for extending
financial services to unbanked sections of the population.

Microfinance provides financial services to low-income clients or cohesion lending

groups, including consumers and the self-employed, who are excluded from all
sought of financial services.

Microfinance provides different kind of products to the poor and it is a financially

viable development tool whose objective is to aid poor to work and poverty. It
covers a wide range of services like financial as well as non-financial services.

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Microfinance products

 Credit

 Savings

 Insurance

 Non financial services like training, counseling etc.

Salient features of Microfinance:

 Loans are of small amount – micro credit and micro loans for the poor.

 Loans are offered devoid of collaterals

 Loans are generally taken for empowerment and increase the standard of
living and for entrepreneurship by the rural poor.

 Borrowers are from the low income group

 Short and long duration loans.

 High frequency of repayment

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 Concept of Micro Finance and its Implementation in India

Micro finance was established in Bangladesh by the guidelines of Grameena Bank

in 1983. The basic objectives of micro finance that distinguish it from the previous
modes of credit delivery are small amounts of loan, lack of physical security but
highlighting on social security or peer monitoring and focus on women borrowers.
Micro finance is expected to tackle the major three problems that are often faced in
any credit delivery program planned for the poor, namely, targeting, broadcast of
borrowers, and implementation of the credit contract. Under the model of micro
finance promoted by the Grameena Bank, women borrowers are organized into
Self- Help Groups (SHGs), which would be enabled to borrow from the lending
institution either for individual or group requirements. These groups are normally
formed by women from similar socioeconomic backgrounds that strengthen the
unity among these women. The participation of the entire group at every stage of
seeking loans and its repayment is important and needs proper monitoring.

In many countries across the world, micro finance originated from the activities of
Non-Governmental Organizations (NGOs) that were supported largely or partly by
foreign donors for their lending operations. Against this context, the Indian
experiment with micro finance was different in major two aspects. At the
beginning, India started to provide micro finance through its public bank network.

The commercial banking network, whose development after bank nationalization

in terms of geographical spread and purposefully reach is often deemed
unparalleled in the world was lashed in for micro finance. The microfinance
institution experiment in India and been pronounced by NABARD as relationship
banking rather than parallel banking elsewhere in the world.

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 NABARD

NABARD is a Development Bank with an authorization for providing and

regulating credit and other facilities for the commendation and development of
agriculture, cottage and village industries, small-scale industries handicrafts and
other related economic activities in rural areas with a view to stimulating
integrated rural development and obtaining prosperity of rural areas and economic
development.

Main role of NABARD in Rural developments

 It gives refinance facilities for lending institutions in rural areas

 Promoting institutional development
 Measuring, monitoring and inspecting the client banks
 Acts as a controller in the operations of rural credit institutions
 Extends support to the regime, the Reserve Bank of India and other
governing bodies on matters pertaining to rural development
 Offers research and training amenities for banks and organizations
operating in the area of rural growth
 Helps the state governments in getting to their aims, of providing aid
to eligible institutions in agriculture and rural growth
 It gives guideline and refinance facilities for RRBs and cooperative banks
for rural development

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 Development Initiatives

 The Financial Inclusion Fund and the Financial Inclusion Technology Fund
as on 31 March 2013 sanctions were 181.64 crore and 365.49 crore.
 SHG-Bank Linkage Program as on 31 March 2013, there were more than
73.18 lakh savings linked Self Help Groups (SHG) and 44.51 lakh credit-
linked SHGs covering over 10.3 crore poor households under the micro-
finance program.

 It provided guiding for microfinance program during 2012-13 by taking a

congregation of new initiatives and consolidating some of the already
operational interventions

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 Microfinance Models in India

In India, the beginning of microfinance movement could be traced to Self Help

Group (SHG) Bank Linkage Program (SBLP) started as a pilot project in 1992 by
NABARD. This programmed proved to be very successful and has also developed
as the most popular model of microfinance in India.

In India, the institutions which provide microfinance services includes, NABARD

Commercial Banks, Regional Rural Banks, Cooperative Banks and Non- Banking
Financial Companies (NBFCs).

Channels of Micro finance

1. SHG - Bank Linkage Programme (SBLP)

A Self Help Group is a small group of 10 to 20 persons of rural poor who come
together to jointly contribute to common fund and meeting their emergency
requirements. SHG - Bank Linkage Programme was introduced by NABARD in
1992.

Under this programme 3 different models have emerged:-

a) Model I - Banks taken as responsibility to promote and guide SHGs.

b) Model II - SHGs promoted by government agencies and NGOs.

c) Model III - SHGs promoted by NGOs and financed by banks under NGOs /
formal agencies as financial intermediaries.

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2. Micro Finance Institutions

MFls include NGOs, trusts, social and economic entrepreneurs; these lend small,
sized loans to individuals or SHGs. They also provide other services like capacity
building, training, marketing of products etc.

MFIs operate under following models:-

a) Bank Partnership Model

i) MFI as Agent -
MFI acts as an agent and take responsibility of borrower and till the final
repayment.

ii) MFI as Holder of Loans-

MFI holds the individual loans on its books and securitizing them before selling
them to bank.

b) Banking Facilitators:-
Banking facilitators / correspondents are intermediaries who carry out banking
functions in villages or areas where it is not possible to open a branch. In January
2006, RBI permitted banks to use services of MFIs and NGOs to act as
intermediaries in providing banking and financial services to poor.

1. Grameen Bank
The Grameen model emerged from the poor-focused grassroots institution,
Grameen Bank, started by Prof. Mohammed Yunus in Bangladesh. The Grameena
Bank Model is focused in providing finance to entrepreneurial women who are
already into some small jobs. The grouping, which is made up of about five
members and financing of this model is a substitute collateral tool taking care of
default and also possible risks. The guarantee is on one on another in the group.

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2. Co-operative Bank
Cooperatives Bank individual village banks and also credit unions are established.
The individual village banks consist of 30 to 50 members. The village banks
returns the principal with interest/profits to the implementing agency at the time
when individual loans are repaid on weekly basis. Subsequent loans are considered
only when repayment is made in full.

3. Self Help Group

The Self Help Group (SHG) is an indigenous model formed out of a small group of
members who are homogenous in terms of income. The savings are pooled and
lending is done for promoting development. SHGs are also financed and supported
by NGOs.
The main objective of SHGs is to provide small loans to poor in order to help them
invest in their livelihood. In 1992 with the support of RBK SHG - Bank linkage
programme was launched by NABARD.

FUNCTIONS OF SHGs

 Group Formation: Members voluntarily form groups for generating

employment and reducing poverty.
 Savings: SHG encourages its members to save a part of their income on a
habitual basis. Savings are transferred to groups.
 Lending: After laying aside for a number of days, the funds can be applied
to make loans to their group members.
 Record: SHG groups will maintain day to day transaction dat

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Financial Inclusion in India – Overview
Financial inclusion is the provision of financial services at an affordable cost to
various sections of the disadvantaged and lower income groups. The main
objective of financial inclusion is to provide equal opportunities to each and every
individual to gain the facility of formal financial channels for better living and
better income. Inventing and providing various means to include the financial ways
of ensuring access to timely adequate credit and financial services. Financial
inclusion has been a never ending in itself, but rather a gateway, a process.
Financial inclusion provides various facilities to those who are excluded from all
the financial service. It provides facilities like savings, loans and insurance services
by the formal financial system

Progress of Financial Inclusion in India

Parameter of financial inclusion March 2010 March 2016 March 2017

Number of bank branches in villages 33,378 51,830 50,860

Number of business correspondents (BCs) 34,174 531,229 543,272

Number of other form of banking touch points 142 3,248 3,761

Number of BSBDA (in millions) 73 469 533

Total number of banking touch points 67,694 586,307 598,093

Deposit in BSBDA 55 636 977

(Amount in Rs Billion)
Note: *Basic Savings Bank Deposit Account is a no-frill savings account without
the need to maintain minimum balance and where no charges are levied.
Source: Annual Report of RBI, 2016-17

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Current status of Financial Inclusion in India

The Indian banking industry is able to penetrate only less than 50% of the
population over the last few decades. The reserve bank of India and the
government of India has taken many numbers of steps to further accelerate the
process of financial inclusion. The modern society financial inclusion plays a
major role in rural development of economy. In spite of the aggressive growth in
many financial segments ever since 2001 coupled with the successful absorbing the
global recession since 2008, under the penetration of banking facility and more
financial products and services is spreading both in rural and urban area of India.

Though Indian credit banking has enjoyed a good growth since 2003, credit
penetration remains below global benchmarks, which indicates healthy growth
potential on one side and on the other side, failed to achieve equitable distribution in
society. In India, the household sector generates more saving when compared to the
private and corporate sectors.

The statistics on financial exclusion, over 600 million rural habitations in the
country, only about 30,000 or just 5% have a commercial bank branches. Only 50
percent of the population across the country has bank accounts and this ratio is much
lower in north-eastern part of the country, shows a very disconsolate picture. The
people having any kind of life insurance cover are low as 10 percent and only 0.6 %
having non-life insurance is an awful. Only 13 percent people having debit cards and
2 percent having credit cards.

From the total number of saving, bank accounts the majority is inactive. Status of
active accounts „no frill accounts‟ is altogether alarming. Throughout India, less
than 10% of the „no frill accounts‟ are active. Due to the absence of financial
literacy, a few conduct banking transactions and very few receive credit from
formal financial literacy, a few conduct banking transactions and very few receive

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credit from formal channels. Many people across the country have thereby missed
the opportunity to increase their earning capacity and to utilize their
entrepreneurial talent and continued to struggle with their limited resources.

INSTITUTIONS AND FINANCIAL INCLUSIONS

Financial institutions, both large and small have an important role to play in
financial inclusions. With their organized structure and effective management
larger financial institutions could work as mentors for small financial services firm
by ensuring a strong financial backup.

Commercial banks: Commercial banks could act as an important part of the

process to achieve full financial inclusions. Especially with simplified savings
bank accounts (including no-frills account), relaxed know your customer (KYC)
procedures, primary sector lending and even microfinance.

Cooperative banks: The urban and rural cooperative banks could cater for a
population that is generally neglected by the commercial banks. Their positions
allow them to reach out to the people far easier than the more formal commercial
banks. Since they are operated by the members of the banks themselves, there
would be more improvement from the people of such cooperatives.

Regional rural banks: Through priority sector lending, KCCs and GCCS, the
RRBs could ensure a steady flow of credit to the rural poor especially the marginal
farmers. The RRBs like the commercial banks can deal with the agencies like
NGOs who are interested in helping out the poor and the weakersections.

Non-banking financial companies (NBFCs): The NBFCs could include both

large and small financial firms which provide financial services. They could offer
specific financial products to the poor and low income people such as micro

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insurance, microcredit, etc. The NBFCs could create financial awareness among
the people by not only offering alternative financial services but also spreading
financial literacy by providing financial advices.

Microfinance institutions (MFIs): They are created with the specific aim of
extending financial services to the poor and the weaker sections of the populations.
An MFI could be independent or as in most cases are promoted by NGOs,
government agencies, NBFCs, commercial banks and other institutions. MFIs have
so far been the most successful at ensuring basic financial services to the unbanked
sections of the populations. Along with the SHG movement, the MFIs has enabled
the wealth generated in many underdeveloped rural as well as neglected urban
areas in India.

Post office banking (POSB): These, along with their extensive network could
offer a wide Variety of small and micro financial services to the people. The
POSBs could utilize their staff to deliver door-to-door services to the people.

Non-governmental organization (NGOs): NGOs could provide financial assistance

to the poor and the weaker sections through NGO promoted MFIs or by providing
financial advice. NGOs working for the poor and the economically deprived can
more closely analyze their spending patterns and credit requirements. Commercial
banks and other large financial agencies can work closely with NGOs to ensure that
the dealings with the poor and the weaker sections turn out to be a fruitful activity
not only for the people but also for the people but also for the lending agencies.

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 RATIONALE OF THE STUDY

Government through various schemes is helping the people through different

schemes for the economic uplifting. However, due to some of the obstacles in the
economy. It is difficult to reach all the people through a single scheme to rural
poor people who are short of funds to take up some of the economic activities.
Financial Institution and the banking sector are not providing funds to such
persons, Microfinance Institutions and NABARD is taking up function of
providing, assistance to rural poor people and helping them to realize theirgoals.

The study focused in order to find out how effectively the MFI are providing funds
to the beneficiaries in realizing their goals and the fundamental aspects of the
success of MFI in poverty reduction. To measure the efficiency of Microfinance
models through NABARD and other supporting Financial Institutions in financial
inclusion. Thus the study is immense potentials in translating the basic objective of
rural poor people.

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 CHAPTER -2

LITERATURE REVIEW

Microfinance has been widely recognized as a crucial tool for poverty alleviation and
socioeconomic wellbeing. It helps them to diversify the household income, smoothen the
household expenditure and enable them to cope with economic shocks and fluctuations
(Ledgerwood, 1998; Littlefield, Murduch, & Hashemi, 2003; Robinson., 2001).

Microenterprises (Small and tiny enterprises):- Microenterprises are not easy to

define. They usually include very Small Street vendors, carpenters, tailors (and such
trades people), machine shop operators, peasant farmers and so on. Micro-
entrepreneurs come in all types, and their businesses in many sizes. This diverse
group of self- employed people requires a support to grow and improve. Their
numbers are large and they provide various kinds of services and employment and
employment opportunities. Microenterprises contribute significantly to economic
growth, social stability and equality. The sector is one of the most important vehicles
by which people in low- income groups can come out of poverty. This is all the more
important if we consider that the people in this group have limited education and do
not possess the necessary skills necessary for jobs in the formal, organized sector. In
India Micro enterprises are identified as those businesses having an investment of
less than Rupees10 lakhs and employing not more than ten persons. (Micro, Small
and Medium Enterprise Act, 2006).

Ghate Prabhu: „ Indian Microfinance rapid growth‟ is a detail review of

the microfinance sector in India. The report is based on secondary data and the
available literature and contains a comprehensive discussion on the microfinance
sector in India. In the section „microfinance plus‟ (op-cit p.10) the chapter „some
ongoing research on Indian microfinance‟ Ghate suggest that MFIs must take

20
provision for

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business training or livelihood counseling to its clients. This will enhance the skills,
increase productivity, and also bring about improvements in production, marketing
and financial management among the borrowers. Social service provisioning along
with the financial provisioning enhances the quality of impact of microfinance
business and financial skills also empowers the borrowers take risks , visualize
scenarios in the long term. The training imparted to the borrowers in SEWA has
helped to change their business perspective. However, these aspects are not discussed
in further detail and, as a result, there is not much clarity on the matter. But the
author emphasizes (op.cit, p. 211) and accepts that training inputs on social services
to clients of microfinance are important along with financial training.
The report also refers to a study carried out by EDA Rural Systems in association

Saguna, B had conducted a study in the Chittor district of Andhra Pradesh,

“empowerment of rural women through self help group”. An attempt was made to
determine the relationship between the SHGs and level of empowerment among their
women members in rural areas and the resulting impact on rural. Primary data was
collected through stratified sampling of a total of 300 SHGs from three revenue divisions
of the district. Secondary data was collected from various sources. The tools used for data
collection were interview schedules, personal interviews, and observation and official
documents.

P.J.Christabell carried out an empirical study to know and understand the

contribution of microfinance in bringing about changes among the members of the
SHGs in the Ullor panchayat in Kerala. The study is an effort to determine the effect
of microfinance on the development of various capacities economic, social,
democratic, and political- among the members of SHGs. The availability of
microfinance provisions and access to it has helped to develop the self confidence of
the women members of SHGs and provided opportunities for self employment

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P. Christuraj and S. Saraswathy studied the socio-economic changes and
empowerment among the SHG members. Their focus was on the group approach and
the resultant benefits. The socio-economic changes were measure with twenty
parameters with parameter rated on a scale of one to five. The study concluded that
the group approach has resulted in socio-economic changes among the members.
The study also found that membership of SHGs gained them better access to a
variety services. Being a part of a group also enabled members to voice their
concerns-against exploitation, living conditions and other issues- more confidently.
Thus being a part of a SHG went beyond credit financing. It also enabled collective
action by the poor and marginalized to bring about the desired changes to their lives.
This would not have been possible otherwise. It would not be wrong to say that
SHGs are creating space for marginalized and poor women members to explore new
horizons.

Sinha Debotosh : In his study, Sinha reported the experiences of women who set up
businesses after joining SHGs.They had joined with their husbands in their
businesses experienced considerable growth. A common constrained, voiced by the
women was insufficient training inputs and lack of institutional support. Sinha
suggested a need- and local resource -based training inputs to enable SHG members
to take up suitable economic activities that are based on locally available raw
material.

Murty G.R.K, Samanta Pradeep Kumar: In the section on public and private
partnership, the authors have clearly stated that microfinance alone is not the panacea
for eradicating poverty. It is just one of the tools to help the poor to develop
themselves. The delivery of microfinance must be backed by support to address other
issues related to their socio-economic status. Some of the concerns are ill- health and
poor nutrition, poor education levels, lack of capacities and capabilities, and so on. It
is only when the right environment is created that people will be in a condition to
work to put the credit to good use. The authors suggest that corporate sector take up
some responsibility for creating an enabling environment and strengthen the SHG
movement. However, no specific proposals have been put forward. The authors also
23
recommend that the government increase its efforts to develop skills and capacities.

Bhide and Mehta: Bhide and Mehta emphasized that education is paramount in
enabling an individual to escape poverty. Thus, investment in education must be
accompanied by making available income generating opportunities.

Harper Malcom says in his writing that government should provide the public
services which enable poverty stricken people to take advantage of the synergies
between nutrition, education and family planning and so they can exit poverty. Thus,
along with microfinance, other issues also must be taken care off while working on
the poverty alleviation strategies. He further adds telling- that need for achievement
motivation has been seen as the driving force for an individual to take risk and
venture in to business.

Titus Mathew, says attention to micro finance must be a part of wider policy
engagement with poverty alleviation and as he suggested above, with micro-enterprise,
including a deep understanding of their role in providing livelihood and contributing to
national economic development.

Prof Asha Bhatia, Dr. S.N.V. Sivakumar and Ankit Agarwal outlines the important
role of NBFCs, MFIs, RRBs, and SHGs with respect to microfinance. Through the study
researcher understand the current status, analyze the gaps and reviews the reforms, the
present government has brought about to boost India‟s rural economy. From the study
researcher found that more than 10 million young Indians joining the workforce every
year, microfinance can be of immense use to provide gainful employment to some of
them.

Sonia Goyal conducted a research on present scenario of microfinance in India and state
that microfinance is playing a vital role in economic, psychological and social
development of India. Microfinance creates the confidence, skill and courage in the
marginalized section of society.

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Vipin Kumar, Monu Chauhan, Ritesh Kumar gives an overview of microfinance in
India and concludes that microfinance has caught the attention as an effective tool for
poverty reduction and socio-economic development. From the study it can be viewed that
SHGs and MFIs are playing a vital role in delivery of microfinance services which leads
development of poor and low income people in India.

Parijat Dhar conducted a state wise analysis on microfinance penetration in India and
results in, the outreach of microfinance programmes across various regions in the county
under both the models adopted in the country has been uneven. The Southern and Eastern
regions are rich in terms of client outreach and loan portfolio both under the SBLP and
MFI models. While the North-eastern and Northern regions have not made a significant
headway in this regard with microfinance continuing to be in a nascent stage. And also
conclude that in order to alleviate poverty, reduce regional disparities, reduce inequalities
and focus on skill building of the otherwise neglected sections of the society,
microfinance is playing an important role.

eFisher Thomas and Sriram M.S edited the book beyond micro Credit - Putting
Development Back into Micro finance. Several practitioners‟ thinkers have contributed
critically on the various aspects and the changes required in the present micro-credit and
microfinance sector in the Indian context. It has been discussed that there are two schools
under the microfinance sector one is poverty and second is microfinance for earning
profit through inclusion. There is a critique on financial school of thought of
microfinance and concludes that development of the poorest by providing micro-credit
will not bring the change in poverty alleviation state. Hand-holding and support is
necessary. The authors have quoted the example of microfinance institutions who have
clubbed micro-credit package with capacity building, business and financial counseling,
and another support services.

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Joshi-Pant, Deepali : Joshi-Pant dealt with contemporary issues in her book „Social
banking‟. She mentions that SHG succeeded in gaining access to what formal
financial institutions failed to do as their loans were not linked to the provision of credit.
Microfinance for the poor/women is now widely recognized as a strategy for poverty
alleviation, employment and economic empowerment. The author further explains how
microfinance helps the poor increase their income, build viable businesses and reduce
their vulnerability to external shocks. It is also an instrument for self empowerment and
enables women, who bear the double burden of being poor and being women, to become
agents of economic change. She mentions along with SHGs new intermediation, some
much wider transformations of institutional framework are required.

Mohanty Smrutirekha , studied credit needs and the releated institutional aspects of
rural artisans in Orissa. The needs and requirements these artisans-turned- micro-
entrepreneurs were examined with empirical evidence. Mohanty showed that these
microenterprises are home-based, and their products are commonly sold in the local
markets. The study also reported difficulty in obtaining adequate raw material-
mostly supplied by co-operatives. The enterprises also suffered from lack of proper
market access, poor infrastructure- roads, warehousing, power etc. There was also no
agency to support the artisans in obtaining appropriate technology, getting suitable
market access and the right price for their products.

Seibel Hens Dieter and Uben Parhusip: The vast majority of micro- entrepreneurs
do not have access to Institutional finance. The conventional approach to financing
microenterprises faced the hurdle of high transactional cost to both lenders and the
borrowers. The financial institutions could not afford credit subsidy and the
borrowers-the micro entrepreneurs- could not pay market rates of interest. SHGs
have helped in finding a way out. They have helped micro entrepreneurs realize their
full potential. The cohesive nature of SHGs instilled a collective goal, group peer
pressure ensured discipline among the members, and group savings served as
collateral. Thus, SHGs made for more reliable intermediaries. In 1986, the workshop
held by the Asian and Pacific Regional Agricultural Credit Association (RACA) in

26
Nanjing, China, the members adopted a novel programme involving a financial
system built around Self help Groups. The SHGs would serve as grassroots
intermediaries between banks and rural microenterprise.

Jerinabi U. & Kanniammal K.: „Micro credit anti-poverty tool‟, a quantitative

study conducted on 202 beneficiaries of credit supplied through SHGs in Annamalai
Panchayat, Karamadai Panchayat union and Periyanaickken Palayam Panchayat
union. The study revealed that middle-aged women were more interested in
becoming entrepreneurs. 42% of the women had started a microenterprise to increase
income level. 33% of women respondents found employment through a
microenterprise, which made them self reliant. 88% women earned a profit from their
microenterprises. However, the study makes no mention of the systemic contribution
to the results. It is important to know how these microenterprises were set up and
developed.

Dr. Krishna Banana and Mrs. Haseena Shaik conducted a study on the evolution of
microfinance in India and progress of microfinance institutions bank linkage programme
in India and its delivery models. And find that MFIs in India have evolved into a vibrant
segment of the financial sector, exhibiting a variety of business models. And now MFIs
need to re-evaluate their current position in the market and remodel themselves in order
to stay relevant in terms of providing capital.

Sanskriti Singh executed a research to study the outreach and trends of microfinance
industry in India. And finds that microfinance industry is growing at a fast pace and can
be understood as a supplement to poverty alleviation programmes in India. Clearly, the
current regulatory structure requires reforms, and the Microfinance Regulations Bill
seems to meet most of the requirements as can be identified from the cross country
analysis of best practices.

27
Dr. S.C. Vetrivel get an insight of the role of microfinance on women employment
through Self Help Groups (SHGs) Bank Linkage Programs which has been successful not
only in meeting financial needs of the rural poor women but also in strengthening
collective self help capacities of the poor leading to their empowerment. The research
presents some findings the microfinance can contribute to solving the problems of
inadequate housing and urban services as an integral part of poverty alleviation programs.

K.S. Ranjani outlines the need for conceptual framework for regulation of MFI in India.
The research findings suggests that like every other financial intermediary, microfinance
institutions will benefit the customer as well as the industry at large when they subject
themselves to both self and statuary regulations.

A Banerjee, E Duflo and R Glennester their paper reports results from the randomized
evaluation of a group-lending microcredit program in Hyderabad, India. A lender worked
in 52 randomly selected neighborhoods, leading to an 8.4 percentage point increase in
take-up of microcredit. Small business investment and profits of preexisting businesses
increased, but consumption did not significantly increase. Durable goods expenditure
increased, while “temptation goods” expenditure declined We found no significant
changes in health, education, or women‟s empowerment .Two years later, after control
areas had gained access to microcredit but households in treatment area had borrowed for
longer land in larger amounts, very few significant differences persist.

28
 Chapter-3

Research objectives

1. To identify the effectiveness of micro finance Institutions in providing small

loans in India

2. To analyze the role of micro finance in development of small entrepreneurs.

3. To identify the effectiveness of micro finance Institution in reducing poverty.

29
 Chapter-4

RESEARCH METHODOLOGY

Research is a systematic activity to achieve the truth. Research in common parlance

refers to the search for knowledge. One can also define research as a scientific and
systematic search for pertinent information on a specific topic. In fact, research is a part
of scientific investigation. The Advanced Learner‟s Dictionary of Current English lays
down the meaning of research as “a careful investigation or inquiry specially through
search for new facts in any branch of knowledge.” Research includes the procedure of
collecting data, analysing the data and finding the conclusion or truth. Research
methodology is a way to systematically solve the research problem. It may be understood
as a science of studying how research is done scientifically.

Research design

A proper research always has a definite framework for data collection. This framework
constitutes the research design. In this study descriptive research design has been used.

Data collection

The data source refers to the sources from which the data are collected for conducting the
study. Data may be of two types-

 Primary Data

 Secondary Data

30
Primary Data: The data collected from the field under the control and supervision of an
investigator is known as Primary Data .This type of data is generally afresh and collected
for the first time .In this study primary data was mainly collected through the structured
questionnaire.

Questionnaire contains the list of questions (enclosed in annexure) regarding the project
for research. It was filled by sample of individuals selected as universe. All precautions
were taken in preparation of questionnaire so that reliable data can be obtained.

Secondary Data: Secondary data are collected from the sources which have been already
collected for purpose other than the problem at hand. For this study, Secondary data
sources are:-

 Annual reports NABARD.

 Journals and magazines,

 Internet websites,

 Books on microfinance.

Sampling

According to Yule, a famous statistician, the object of sampling is to get

maximum information about the parent population with minimum effort.

An integral component of a research design is the sampling plan. Specifically, it

addresses three questions:

 Beneficiaries of micro & small entrepreneurs of Dehradun (The Sample Unit)

 110 (The Sample Size) &

 Random (The Sampling Procedure)

31
TOOL USED FOR DATA COLLECTION:

 The tool used for collecting the data is through the Questionnaire.

 The main reason for selecting the questionnaire method for the study is
respondents have adequate time to give well thought out answers

 The time of the study was also a limiting factor

DATA ANALYSIS

 The data collected through the primary and secondary sources in this
research is being analyzed with the help of graph, charts, and
diagrams

TESTS APPLIED
 The tests applied for the interpretation of data was chi Square test.

32
 LIMITATIONS OF STUDY

 The data was collected through questionnaire. The response from the respondents
may not be accurate.
 The sample taken for the study was only 110 and the results drawn may not
be accurate.
 Another difficulty was very limited time-span of the project and lack
of experience of researcher.
 Study is based on the data collected from 110 respondents hence findings
cannot be generalized.
 Most respondents might be influenced by their peers in answering the question.

33
 CHAPTER 5

DATA ANALYSIS AND INTERPRETATION

To identify the effectiveness of micro finance Institutions in providing small

loans in India and reducing poverty

Table 1: Progress under SHG Bank linkage Programme

Particulars 2014-15 2015-16 2016-17 2017-18

No of Amount No of SHG Amount No of Amount No of Amount

SHG (in (in Lakhs) (in Crores) SHG (in SHG (in Crores)
(in Lakhs) Crores) (in Crores) (in Lakhs)
Lakhs)

Saving of 69.53 6198.7 74.62 7016.3 79.60 6551.41 73.18 8217.25

SHG with
Banks
(7.3%) (13.2%) (6.7%) (-6.7%) (-8.1%) (25.4%)

Loan 15.86 14453.3 11.96 14547.7 11.48 16534.77 12.20 20585.36

Disbursed
by banks
(-24.6%) (0.01%) (-4%) (13.7%) (6.3%) (24.5%)

Loan 48.51 28038.3 47.87 31221.17 43.54 36340.00 44.51 39375.30

outstandin
g with the
Banks (-1.3%) (11.4%) (-9.0%) (16.4%) (2.2%) (8.4%)

Source: NABARD, Note: Figures in parentheses are percentages

34
Interpretation

(a) Savings of SHGs with the Banks:

Graph 1.1

Saving of SHG with Banks

9000
8000
7000
6000
5000
Saving of SHG with
4000 Banks
3000
2000
1000
0
2014-15 2015-16 2016-17 2017-18

table depicts the saving of SHGs with banks, as we see, in the year 2014-15, 69.53 lakh
SHGs were having a saving account with the banking sector with saving of 6198.7 crore.
Further, in 2015-16 a total of 79.60 lakh SHGs were having saving account with saving
6551.41 as against 74.62 lakh SHGs with saving of 7016.3 crores in previous year. It
show that there has been decline in amount of saving balances with the bank to the extent
(-6.7%) as compared to previous year. A similar decline of number of SHGs savings
linked to banks has also been observed in 2017-18 only 73.18 lakh SHGs linked to banks
as against 79.60 lakh a year back. For the first time since the SHG-Bank linkage
programme was launched, there is a decline in the number of SHGs to the extent of (-
8.1%) during the year 2017-18, though the savings harnessed by SHGs grew by 25.4%.
Increasing awareness at the SHG level about the advantage of using the savings for
internal loaning is also partly responsible for the decline in saving balance with banks.

35
(b) Loan disbursed by banks:
Graph 1.2

Loan
Disbursed by banks

25000

20000

15000
Loan
10000 Disbursed by banks
5000

0
2014-15 2015-16 2016-17 2017-18

During 2014-15, banks have financed 15.86 lakh SHGs, with bank loans of 14,453.30
crore, but as we see in the year 2015-16 bank extended fresh loan of 14547.7 crore to
11.96 SHGs. It has been showed a declining of nearly 25% in the number of SHG as
compared to previous year. Further during the year 2017-18 the number of SHGs availing
fresh loans by banks showed an increase of 6.3% and the quantum of fresh loans issued
increased by 24.5% as compared to previous year.

36
(c) Loan Outstanding with the banks:

Graph 1.3

Loan outstanding with the

Banks

50000

40000

30000
Loan outstanding with
20000 the
Banks
10000

0
2014-15 2015-16 2016-17 2017-18

In the year 2014-15, total number of 48.51 lakh SHGs were having outstanding bank
loans of 28,038.28 crore. Further, the number of SHGs having loans outstanding against
them from banks declined by 9% during the year 2016-17 although the quantum of loans
outstanding increased to `36340 crore (16.4% increase over last year). The growth in the
loan outstanding of SHGs with banks in the year 2017-18 (8.4%) is almost 4 times the
growth in the number of SHGs having outstanding loans with banks (2.2%). So loan
outstanding is responsible for increase in NPAs of SHG loans with banks.

37
Table 2: Progress under MFI Bank Linkage Programme

Particulars 2014-15 2015-16 2016-17 2017-18

No of Amount No of Amount (in No of Amount (in No of Amount

SHG (in SHG (in Crores) SHG (in Crores) SHG (in (in
(in Crores) Lakhs) Lakhs) Lakhs) Crores)
Lakhs)

Loan 779 10728.50 471 8448.96 465 5205.29 426 7839.31

disbursed by
banks to (-39.5%) (-21.3%) (-1.3%) (-38.39%) (-8.4%) (50.6%)
MFI

Loan 1659 13955.75 2315 13730.62 1960 11450.35 2042 14425.84

outstanding
against MFI (39.5%) (-2.0%) (-15.3%) (-16.6%) (4.2%) (26.0%)
with
the

Graph 2.1

16000
14000
12000
Loan disbursed by
10000 banks to
8000 MFI
6000 Loan outstanding
against MFI
4000
2000
0
2014-15 2015-16 2016-17 2017-18

Interpretation

It highlights that after 3 years of the MFI crisis; the MFIs seem to be on the path of
regaining the confidence of the clients as well as with the lending institutions. Fresh loans
issued to MFIs by Banks showed a 50% increase in the year 2017-18 year as compared to
previous year, while the number of MFIs having access to fresh loans declined by 8.4%
indicating selective lending by the Banks. But loan outstanding in banks in the year 2017-
18 the highest compared to previous years.

38
Table 3: Agency wise loan to MFI

Financing Agency Period Loan disbursed to MFI Loan Outstanding against MFI
No of SHG Amount (crore) No of SHG Amount (`crore)
2014-15 645 8038.61 1407 10095.32
All commercial 2015-16 460 7601.02 2153 10646.84
Banks
2016-17 336 4950.98 1684 9810.98
2017-18 368 7422.66 1769 12467.72
2014-15 46 24.14 103 52.22
Regional Rural 2015-16 9 4.16 23 42.01
Banks
2016-17 113 13.28 128 37.51
2017-18 14 4.58 153 70.66
2014-15 0 0 3 0.01
Cooperatives banks 2015-16 NA NA NA NA
2016-17 4 1.61 19 4.75
2017-18 3 4.00 18 6.83
2014-15 88 2665.75 146 3808.20
SIDBI 2015-16 2 843.78 139 3041.77
2016-17 12 239.42 129 1597.11
2017-18 41 408.27 102 1880.63
2014-15 779 10728.50 1659 13955.75
Total by all
Agencies 2015-16 471 8448.96 2315 13730.62
2016-17 465 5205.29 1960 11450.35
2017-18 426 7839.51 2042 14425.84

Sources: NABARD (status of micro finance in India)

39
Interpretation
Table 3 shows that banks have financed to 471 MFIs with bank loans of `8448.96 crore
as against 779 MFIs with bank loans of` 10728.50 crore during 2015-16. Representing
decline in bank loans disbursed. Further, during the same year (2015-16), the outstanding
bank loans against 2315 MFIs was `13730.62 crore. While in 2014-15, SIDBI had
financed to 88 MFIs with financial assistance of ` 2665.75 crore and the loan outstanding
against 146 MFIs was `3808.20 crore in the year 2014-15. As such the total exposure of
banks and financial institutions to MFIs as on 2017-18 was to the tune of `14425.84 crore
which show increase in loan outstanding against MFI.As we see after 2014-15
Commercial Banks (and financial institutions like SIDBI) are losing their confidence in
lending to mFIs is evident from the fact that the fresh lending to mFIs by banks during
the year declined. There has also been a marginal decline in the number of mFIs availing
fresh loans from Banks. If the trend continues, this sector is likely to face serious
resource crunch and could affect its outreach plans in the near future. Overall, as we see
among the agencies lending funds to mFIs, the major share belonged to Commercial
Banks.

40
To analyze the role of micro finance in development of Small entrepreneur

Key characteristics of the respondents

To understand the demographics of the respondent‟s univariate analysis is done using
Frequency Tables.
The key analysis is as under:

Table 5. Age of the respondents

Frequency Percent Cumulative Percent

26 yrs. to 45 yrs. 72 65.5 65.5
46 yrs. and above 22 20.0 85.5
18 yrs. to 25 yrs. 16 14.5 100.0
Total 110 100.0

Interpretation:

From the frequency table, we observe that out of 110 respondents, 72 respondents i.e.
65.5% of respondents belongs the age group of 26 years to 45 years; whereas 22
respondents or 20% of respondents are above 46 years of age and 16 respondents or
14.5% of respondents belongs to the age group of 18 years to 25 years.

Table 6. Gender of the respondents

Frequency Percent Cumulative Percent

Male 56 50.9 50.9
Female 54 49.1 100.0
Total 110 100.0

Interpretation:

From the above frequency table, we observe that out of 110 respondents, 56
respondents i.e. 50.9% of respondents are male; whereas 54 respondents or 49.1% of
respondents are female.

40
Table 8. Type of Business

Frequency Percent Cumulative Percent

Manufacturer 54 49.1 49.1
Wholesaler 29 26.4 75.5
Service Provider 13 11.8 87.3
Retailer 10 9.1 96.4
R&D - (Technology) 4 3.6 100.0
Total 110 100.0

Interpretation:

From the above table, we observe that out of 110 respondents, 54 respondents i.e.
49.1% of respondents are manufacturer, 29 respondents or 26.4% of respondents are
wholesaler, 13 respondents or 11.8% of respondents are providing services, 10
respondents or 9.1% of respondents are retailers and 4 respondents or 3.6% of
respondents provide R&D services.

Experience with MFI‟s

To understand whether MFI‟s are making any significant contribution to the
development and growth of Micro-Enterprises univariate analysis using Frequency
table and bivariate analysis using crosstabs and chi square is done.

Table 9. Have you taken credit from MFIs

Frequency Percent Cumulative Percent

Yes 85 77.3 77.3

No 25 22.7 100.0

Total 110 100.0

Interpretation:
It is observe that out of 110 respondents, 85 respondents i.e. 77.3% of respondents
have taken credit or loan from MFIs; whereas 25 respondents or 22.7% of respondents
have not taken any credit from MFIs.

41
Table 10. Reasons for not taking the credit/loan from MFIs

Frequency Percent Cumulative

Percent
Internal funds are sufficient 10 9.1 40.0
loan taken from banks 6 5.5 64.0
because of possible rejection 5 4.5 84.0
rate of interest is high 4 3.6 100.0
Total 25 22.7
System 85 77.3
Total 110 100.0

Interpretation:
In order to understand the reason behind lack of credit demand, they were asked to
provide the reasons for not seeking loan. In response to this question 40% of them
responded that they have sufficient internal fund and there is no need to raise finance
from bank or other sources. 24% of them prefer taking loan from banks. 20% have not
applied for any finance due to a belief that their loan application will be rejected by
MFIs. 16% did not applied to MFIs due to high interest charged by MFIs.

Table 11. Level of satisfaction of the borrowers of Microfinance

Satisfaction with Microfinance Products

Frequency Percent Cumulative

Percent
Satisfied 37 33.6 43.5
Dissatisfied 24 21.8 71.8
Very Satisfied 12 10.9 85.9
Neutral 6 5.5 92.9
Very dissatisfied 6 5.5 100.0
Total 85 77.3
Missing System 25 22.7
Total 110 100.0

42
Interpretation:
Out of 110 respondents, 85 respondents have taken credit or loan from Microfinance
Institutions. These respondents were asked to their satisfaction on the 5 point Likert
scale. 1 being very satisfied and 5 being very dissatisfied. 43.5% of respondents are
satisfied with the products offered by Microfinance Institutions and 14.1% of
respondents are very satisfied. 28.2% of respondents are dissatisfied and 7.1% of
respondents are very dissatisfied, whereas 7.1% of respondents are neutral.

Table 13. Impact of MFIs credit on the development of business.

Frequency Percent Valid Percent Cumulative

Percent
Increased 67 60.9 60.9 60.9
Stable 32 29.1 29.1 90.0
Decreased 11 10.0 10.0 100.0
Total 110 100.0 100.0

Interpretation:
From the above table it is observed that out of 110 respondents, 67 respondents or
60.9% of respondents replied that their profit increased whereas 29.1% of
respondent‟s profit remained stable. 10% respondents showed a negative change in
their profit.

43
Table 17. Role of Microfinance in development of business

Have you taken loan from MFIs * Development in business Cross tabulation

Decreased Stable Increased Total

Have you taken loan 6 16 63 85
from MFIs Yes
Impact on business 7.1% 18.8% 74.1%

No 5 16 4 25
20.0% 64.0% 16.0%
Total 11 32 67 110
100.0%
10.9% 32.7% 56.4%

Interpretation:

Out of 85 respondents who have taken credit from MFIs, 63 respondents or 74.1% of
respondents business is increased due to the credit taken from MFIs, whereas 18.8%
respondent‟s business remained stable. 7.1% respondent‟s has negative impact of
MFIs credit.

44
Relationship between MFIs credit and its impact on the business of small
entrepreneurs using chi square:

Chi Square is used to measures is there is any relationship between MFIs credit and
the business of small entrepreneurs. The hypotheses are as under:

Testing of Hypothesis:

H0a: There is a significant relationship between MFIs credit and the business of small
entrepreneurs.
H1a: There is no significant relationship between MFIs credit and the business of
small entrepreneurs.

45
Table 20. Chi-Square Tests

Chi Square Dependent Variables

Impact on the business of small entrepreneurs
Value 27.501

Df 2
Asymp. Sig. (2-sided) .000

Interpretation:
The Pearson Chi-Square value for the hypothesis is 0.000 and it is less than α which is
0.05, so we reject H0 but for the last hypothesis the Pearson Chi-square value is 0.104,
which is greater than α so we accept the null hypothesis. The above table indicates that
there is significant relationship between the business of small entrepreneurs and MFIs
credit at a level of significant 5% (P ≤ 0.05. Thus, it can be concluded that the business of
small entrepreneurs are dependent on Microfinance.

46
 Chapter-6

FINDINGS AND CONCLUSION

An attempt has been made in this study to understand the role of Microfinance in
reducing poverty by analyzing the role of MFIs credit in development of small
entrepreneurs and by identifying the effectiveness of micro finance Institutions in
providing small loans in India. This report assessed secondary data of past 5 years
and primary data related to small entrepreneurs who have received credits from Micro
Finance Institutions.

It is observed that 57.6% of respondents are satisfied or very satisfied with the
products offered by Microfinance Institutions. The findings also revealed that most of
the respondents in this study reported that their business had expanded and their
income had increased significantly as a result of having taken microfinance loans
which directly leads to increase in standard living, employment generation and
reduction in poverty. Findings showed that Microfinance lead to expansion of business
and the development of small entrepreneurs.

The study concludes that accessibility to the products offered by Microfinance

Institutions affects financial performance of Micro-Enterprises positively.

Microfinance sector has grown rapidly over the past few decades. The study concludes
that first time in the year 2012-13 after the launch of SHGs BLP there is decline in the
number of SHGs who‟s saving linked with banks. The study also finds out there was
growth in the loan outstanding of SHG and which was responsible of increases in NPAs.
At last we find out that the major share belongs to commercial banks when agency wise
loan issued to MFI. At last steps should be taken to improve the performances of
programmes launched under Micro finance time to time.

47
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Questionnaire

A. General Information:

1. Name ------------------------

2. Sex: Male female

3. Age:
18-25 26-45 46&above

4. Marital Status

Married Unmarried

5. Type of Business

Manufacturer Wholesaler Service

Provider Retailer R&D - (Technology)

B. Experience with MFI‟s

6. Have you taken credit from MFIs ?

a. Yes
b. No

7. Reasons for not taking the credit/loan from MFIs

a. Internal funds are sufficient

51
 b. loan taken from banks
c. because of possible rejection
d. rate of interest is high

8. Level of satisfaction of the borrowers of Microfinance

a. Satisfied
b. Dissatisfied
c. Very satisfied
d. Neutral

9. Impact of MFIs credit on profitability

a. Increased
b. Decreased
c. Stable

10. SMEs Satisfaction with Microfinance Products?

Strongly Satisfied Neutral Disatisfied Strongly disatisfied
Satisfied

52