A Primer on Microfinance A Primer on Microfinance
U. B. Desai U. B. Desai
SPANN Lab.
SPANN Lab.
Dept. of EE Dept. of EE IIT- IIT -Bombay Bombay
www.ee.iitb.ac.in/~ubdesai
www.ee.iitb.ac.in/~ubdesai
Some Basic Question Some Basic Question
Why do we need finance?Why do we need finance?
credit is an instrument for investment and growth.
Why the special need for finance for the underserved communities?Why the special need for finance for the underserved communities?
Same as aboveSame as above
Shift in Perspective: From poverty alleviation to wealth generation Shift in Perspective: From poverty alleviation to wealth generation ------ microfinance will enable wealth generation
microfinance will enable wealth generation
Why do poor still go to unorganized financial institutions (money Why do poor still go to unorganized financial institutions (money lenders,
lenders, shaukarsshaukars, ...)?, ...)?
We will look at this during the talkWe will look at this during the talk
Why is the spread of microfinance so slow?Why is the spread of microfinance so slow?
Commercial financial institutions are not ready to enter this arenaCommercial financial institutions are not ready to enter this arena
Why are commercial banks hesitant to enter microfinance?Why are commercial banks hesitant to enter microfinance?
We will explore this in the talkWe will explore this in the talk
General Belief General Belief
Poor are too difficult to reach. Poor are too difficult to reach.
Small loans to poor is not a financially Small loans to poor is not a financially viable proposition
viable proposition
Financial institutions will loose money Financial institutions will loose money when they give
when they give microcredit microcredit to the poor to the poor
Microcredit Microcredit or or microloans microloans will only increase will only increase the debt burden for the poor
the debt burden for the poor
Do you agree? What is your opinion?
Do you agree? What is your opinion?
Microfinance (
Microfinance ( mFI mFI ) )
A clever scheme for A clever scheme for small
small- - savings and small savings and small - - loan for the underserved loan for the underserved community
community
A financial service for the A financial service for the poor poor
A financial approach A financial approach empowering the poor empowering the poor
Microfinance brings in Microfinance brings in incremental changes incremental changes
It does not bring in It does not bring in
dramatic changes like the dramatic changes like the ones that occur when a ones that occur when a company goes in for an company goes in for an IPOIPO
Microfinance may also be Microfinance may also be considered a tool to give considered a tool to give poor people the
poor people the
opportunity to participate opportunity to participate fully in economic life
fully in economic life
Will improve the village Will improve the village economy
economy
Facilitate increase in cash Facilitate increase in cash flowflow
Bring more villages into the Bring more villages into the market; monetize more
market; monetize more villages
villages
Help generate trade thru Help generate trade thru micro
micro - - enterprises enterprises
Microfinance: Interplay Among ..
Microfinance: Interplay Among ..
Institutions: Institutions:
Access points for the poor to get financial services Access points for the poor to get financial services (e.g. SEWA,
(e.g. SEWA, Grameen Grameen Bank, etc.) Bank, etc.)
These could be bank branches (could be virtual These could be bank branches (could be virtual
branches), socially oriented financial institutions, or a branches), socially oriented financial institutions, or a partnership between the two
partnership between the two
Funding Sources: Funding Sources: Domestic savings (~70%), Domestic savings (~70%),
“private socially responsible citizens” (~30%)
“private socially responsible citizens” (~30%)
Infrastructure: Infrastructure: Here ICT can play a major role Here ICT can play a major role
Unorganized
Unorganized mFI mFI Institutions Institutions ( ( UmFI UmFI ) )
Exorbitant interest rates Exorbitant interest rates
On the low end 3% per month On the low end 3% per month (36% per annum)
(36% per annum)
can be much morecan be much more
Often collateral, like cattle, Often collateral, like cattle, jewelry, etc not returned jewelry, etc not returned
Often the poor get into a debt Often the poor get into a debt cycle for life!
cycle for life!
UmFI does not give loans for sustainability (for e.g. starting a micro-enterprise!)
Still the poor approach Still the poor approach UmFIUmFI ---- ---- Why?Why?
Always available (always on!)Always available (always on!)
You get it when you really You get it when you really need it
need it
Quick disbursementQuick disbursement
Negligible transaction timeNegligible transaction time
Poor go for micro-Poor go for micro-loans just loans just before they rally need it before they rally need it
Loans without collateralLoans without collateral
Dependence of low-Dependence of low-income income households on informal households on informal
sources for loans is nearly 78 sources for loans is nearly 78 per cent.
per cent.
The poor not only has low income but irregular cycle of payments
UmFI UmFI : Case of : Case of Solapur Solapur District District
Collateral based lendingCollateral based lending
Gold is typically the collateralGold is typically the collateral
Borrowers: small time office Borrowers: small time office clerks, peons, … people who clerks, peons, … people who have permanent jobs
have permanent jobs
Collateral amount is 1.5 times Collateral amount is 1.5 times the loan value
the loan value
Loans taken for illness, family Loans taken for illness, family function, etc.
function, etc.
Interest is 3% per monthInterest is 3% per month
Default rate 80% --Default rate 80% -- most of most of the time gold is confiscated the time gold is confiscated
About 100 lenders each About 100 lenders each lending about a Rs.10
lending about a Rs.10 lakhslakhs; ; totaling
totaling Rs.10 Rs.10 crscrs..
Lending without collateralLending without collateral
Interest rates are around 3% Interest rates are around 3%
per month per month
Repayment is on a daily basisRepayment is on a daily basis
Hawker, vegetable vendors will Hawker, vegetable vendors will go for such loans
go for such loans
Often, most of the income Often, most of the income goes in loan payment
goes in loan payment
About 200 to 300 lenders in About 200 to 300 lenders in this category
this category
Each loaning about 5 to 10 Each loaning about 5 to 10 lakhs
lakhs
Totaling about 20 Totaling about 20 crscrs
Some Facts Some Facts
There are an estimated 3,000 microfinance There are an estimated 3,000 microfinance initiatives serving the world's poor
initiatives serving the world's poor
scarcity of money and participation by commercial scarcity of money and participation by commercial financial institutions has limited their expansion.
financial institutions has limited their expansion.
More than 70 percent of them serve fewer than 2,500 More than 70 percent of them serve fewer than 2,500 borrowers each.
borrowers each.
Only 30 microfinance initiatives have grown to Only 30 microfinance initiatives have grown to serve more than 100,000 poor borrowers.
serve more than 100,000 poor borrowers.
The largest The largest mFI mFI , , Grameen Grameen Bank in Bangladesh, Bank in Bangladesh,
reaches more than three million borrowers currently.
reaches more than three million borrowers currently.
A total of $4 billion has been disbursed since A total of $4 billion has been disbursed since Grameen
Grameen started giving loans in 1976 with seed loans started giving loans in 1976 with seed loans starting as small as $35.
starting as small as $35.
India … India …
Earliest Initiative Earliest Initiative
ShriShri MahilaMahila SEWA (Self Employed Women’s Association) SEWA (Self Employed Women’s Association) Sahakari
Sahakari Bank was set up in 1974Bank was set up in 1974
Since then, the bank is providing banking services to the poor Since then, the bank is providing banking services to the poor self-self-employed women working as hawkers, vendors, domestic employed women working as hawkers, vendors, domestic servant etc.
servant etc.
SEWA bank has 1,75,000 depositors; about 70% from urban SEWA bank has 1,75,000 depositors; about 70% from urban area, 30% from rural areas
area, 30% from rural areas
The deposit and loan portfolio stood at RsThe deposit and loan portfolio stood at Rs 623.9 million 623.9 million ($13.86 million) and Rs133.6 million ($2.97 million)
($13.86 million) and Rs133.6 million ($2.97 million) respectively.
respectively.
Though SEWA mFIThough SEWA mFI is making profit, yet the SEWA bank is making profit, yet the SEWA bank model of
model of mFImFI has not been replicated elsewhere in the has not been replicated elsewhere in the country
country
Mention default rateMention default rate
India … India …
Today, there are about 60,000 Today, there are about 60,000 retail credit outlets of the
retail credit outlets of the formal banking sector in the formal banking sector in the rural areas comprising
rural areas comprising
12,000 branches of district 12,000 branches of district level cooperative banks level cooperative banks
over 14,000 branches of the over 14,000 branches of the Regional Rural Banks (
Regional Rural Banks (RRBsRRBs) )
over 30,000 rural and semi-over 30,000 rural and semi- urban branches of commercial urban branches of commercial banks
banks
besides almost 90,000 besides almost 90,000
cooperatives credit societies at cooperatives credit societies at the village level
the village level
On an average, there is at On an average, there is at
least one retail credit outlet for least one retail credit outlet for about 5,000 rural people
about 5,000 rural people
While there is no published While there is no published data on private
data on private mFIsmFIs operating operating in India,
in India,
the number of mFIsthe number of mFIs is is
estimated to be around 800.
estimated to be around 800.
Not more than 10 mFIsNot more than 10 mFIs are are reported to have an outreach reported to have an outreach of 100,000 microfinance
of 100,000 microfinance clients.
clients.
An overwhelming majority of An overwhelming majority of mFIsmFIs are operating on a are operating on a
smaller scale with clients smaller scale with clients
ranging between 500 to 1500 ranging between 500 to 1500 per mFIper mFI. .
Target Populace Target Populace
Rural Poor Women Rural Poor Women
Asset value less than Asset value less than Rs Rs . 20,000/ . 20,000/ - -
Per capita income is less than Per capita income is less than Rs Rs . 350/ . 350/ - - per month
per month
Live in poor housing conditions Live in poor housing conditions
(from SHARE Microfinance Ltd.)
(from SHARE Microfinance Ltd.)
Different type of Microfinance Institutions Different type of Microfinance Institutions
Institutions that offers financial services to low income Institutions that offers financial services to low income people at the prevailing market rates.
people at the prevailing market rates.
Most of these provide microcreditMost of these provide microcredit and accept small payments for and accept small payments for saving and repayment of loans.
saving and repayment of loans.
They do not take saving from the general public. They take They do not take saving from the general public. They take savings from their cliental
savings from their cliental –– mainly the low income group.mainly the low income group.
NGOs which are wholly involved in this or partly. The NGOs which are wholly involved in this or partly. The ones partly involved do several other work that is done ones partly involved do several other work that is done by an NGO.
by an NGO.
Credit Unions Credit Unions
Private commercial banks Private commercial banks
Non- Non - bank financial institutions bank financial institutions
Often one classifies financial institutions like Often one classifies financial institutions like
National Bank for Agriculture and Rural Development National Bank for Agriculture and Rural Development (NABARD)
(NABARD)
Small Industries Development Bank of India (SIDBI) Small Industries Development Bank of India (SIDBI)
Rashtriya Rashtriya Mahila Mahila Kosh Kosh (RMK) (RMK)
as as mFIs; mFIs ;
But, I feel ,they do not fit the bill, because they But, I feel ,they do not fit the bill, because they do not cater to the kind of income talked about do not cater to the kind of income talked about earlier
earlier
Appropriateness of mF Appropriateness of mF
mF works best for those who have identified an mF works best for those who have identified an opportunity and the credit can be used to exploit opportunity and the credit can be used to exploit this opportunity to develop a sustainable source this opportunity to develop a sustainable source of income.
of income.
Microfinance is not appropriate for Microfinance is not appropriate for
Extremely poor, destitutes Extremely poor, destitutes
There has to be some viable way of micro- There has to be some viable way of micro -loan loan repayment
repayment
People who are extremely poor may get into debt People who are extremely poor may get into debt trap with microfinance
trap with microfinance
Numbers vary, but some feel that one has to have Numbers vary, but some feel that one has to have 98% loan repayments rate for an MFI to succeed.
98% loan repayments rate for an MFI to succeed.
Some Data on Financial Sector in Rural Some Data on Financial Sector in Rural
Areas (2002) Areas (2002)
For 630,000 villages we have For 630,000 villages we have 32,443 bank branches
32,443 bank branches
Of the ~67,000 bank branches Of the ~67,000 bank branches in India, ~32,500 or ~48 per in India, ~32,500 or ~48 per cent are in rural India
cent are in rural India
The average population served The average population served by a rural bank is approx.
by a rural bank is approx.
15,000 15,000
Overall, 18 per cent of the Overall, 18 per cent of the rural population has bank rural population has bank accounts. The comparative accounts. The comparative figure in urban India
figure in urban India is almost 100 per cent is almost 100 per cent
The per capita deposit in rural The per capita deposit in rural areas is
areas is RsRs 2,0002,000
Dependence of low-Dependence of low-income income households on informal households on informal
sources for loans is nearly 78 sources for loans is nearly 78 per cent.
per cent.
Share of Different Sectors in GDP (GDP at factor cost, 1993-94 Prices) Rs. In crores
-- RBI, Handbook of Statistics on the Indian Economy
56%
1320733 739842
288266 292625
2002-03
55%
1265429 691016
272359 302054
2001-02
54%
1198685 649011
263797 285877
2000-01
46%
692871 319374
150383 223114
1990-91
43%
401128 171148
70687 159293
1980-81
38%
296278 113438
46151 137320
1970-71
Services%
Total Services
Industry Agri.
Breakup of Indian GDP Breakup of Indian GDP
GDP for India: $650 billion GDP for India: $650 billion
Rural GDP: $150 billion (25%) Rural GDP: $150 billion (25%)
56%
22%
22%
Compare this with IT industry, which is
~ $ 20 billion
Credit to Deposit (CD) Ratio for banks in India
Different Financial Services under Different Financial Services under
Microfinance Microfinance
Deposit services Deposit services
Credit lines Credit lines
Term loans Term loans
Money transfers Money transfers
Crop and life insurance Crop and life insurance
… …
Innovation in Microfinance Innovation in Microfinance
Development of finance products for the Development of finance products for the underserved
underserved
Management of credit risk (minimization Management of credit risk (minimization losses in giving credit)
losses in giving credit)
Scalability: how to reach a vast, diverse, Scalability: how to reach a vast, diverse, not easy to reach and geographically
not easy to reach and geographically scattered populace
scattered populace
Efficient delivery of Efficient delivery of microcredit microcredit
exploit technology exploit technology
Microcredit Microcredit
Delivery Delivery of of microcredit microcredit has to be done more and has to be done more and more efficiently
more efficiently
Here ICT can play a major role Here ICT can play a major role
Determination of a borrower's Determination of a borrower's willingness willingness and and ability
ability to repay a loan is critical if a to repay a loan is critical if a microlender microlender is to minimize credit risk
is to minimize credit risk
Willingness Willingness to repay a loan are complex and to repay a loan are complex and
determined by economic, legal and moral incentives determined by economic, legal and moral incentives
Legal systems and community pressure (for rural areas)Legal systems and community pressure (for rural areas) contribute to a borrower's
contribute to a borrower's willingnesswillingness to repay a loan to repay a loan
Ability Ability refers to a borrower having the financial refers to a borrower having the financial resources to make a scheduled loan payment.
resources to make a scheduled loan payment.
Three operational areas on which a Three operational areas on which a microlender
microlender should focus to minimize should focus to minimize credit risk:
credit risk:
loan design loan design
underwriting underwriting
loan servicing loan servicing
Micro
Micro - - Loan Design Loan Design
Balance between affordability needs of borrowers and Balance between affordability needs of borrowers and costs to micro
costs to micro - - lenders lenders
Revolves on the design of interest rates (Revolves on the design of interest rates (must cover operating must cover operating costs, credit risk and funding costs)
costs, credit risk and funding costs)
Interest are very critical to microfinance institution Interest are very critical to microfinance institution
mFImFI interest are not very low at presentinterest are not very low at present
15% to 36% per annum (SEWA charges 15% to 18%)15% to 36% per annum (SEWA charges 15% to 18%)
Note: RBI interest ceiling is 21%Note: RBI interest ceiling is 21%
On the other hand, for rural poor, it has been observed On the other hand, for rural poor, it has been observed that the amount of monthly payment is much more
that the amount of monthly payment is much more important than interest
important than interest
As long as they are comfortable with the scheduled payment As long as they are comfortable with the scheduled payment
Micro
Micro - - loan Underwriting loan Underwriting
The process of determining a borrower's The process of determining a borrower's credit worthiness
credit worthiness
ability ability and and willingness willingness to repay a loan to repay a loan
Most important from the Most important from the microlender’s microlender’s point of view
point of view
Micro
Micro - - Loan Servicing Loan Servicing
Loan servicing is the act of collecting payments and maintainingLoan servicing is the act of collecting payments and maintaining the the balance of a loan
balance of a loan
In commercial banking, loan payments are made by bank draft or In commercial banking, loan payments are made by bank draft or by directly debiting payroll or a bank account.
by directly debiting payroll or a bank account.
Things are not easy in the world of microfinance.Things are not easy in the world of microfinance.
The typical borrower does not have access to a bank account and often The typical borrower does not have access to a bank account and often does not receive a formal salary.
does not receive a formal salary.
This means that for many customers of microlendersThis means that for many customers of microlenders making loan making loan payments can be difficult and put them in the position of making
payments can be difficult and put them in the position of making the the choice to take time off from work (and possibly get fired) in or
choice to take time off from work (and possibly get fired) in order to der to deliver a loan payment or choose not to make a payment.
deliver a loan payment or choose not to make a payment.
Successful lenders will set up payment kiosks in communities. The Successful lenders will set up payment kiosks in communities. The kiosks are typically open before the typical work day starts and
kiosks are typically open before the typical work day starts and after it after it ends.
ends.
Another effective method, albeit more labor intensive is door-Another effective method, albeit more labor intensive is door-toto--door door collections.
collections.
Micro
Micro - - Loan Servicing … Loan Servicing …
Provide positive incentives for payment.Provide positive incentives for payment.
Borrowers respond well to positive incentives for good payment history.Borrowers respond well to positive incentives for good payment history.
MicrolendersMicrolenders and mortgage lenders have successfully used incentives such and mortgage lenders have successfully used incentives such as payment rebates, small appliances and food to achieve very hi
as payment rebates, small appliances and food to achieve very high levels gh levels of repayment.
of repayment.
For example, one Mexican lender offered a free bag of corn meal if a For example, one Mexican lender offered a free bag of corn meal if a borrower made timely payments for six months. The result was a borrower made timely payments for six months. The result was a delinquency rate of less than 1%
delinquency rate of less than 1%
Be proactive in dealing with delinquencies.Be proactive in dealing with delinquencies.
Rather than wait until a loan goes into default, a microlenderRather than wait until a loan goes into default, a microlender should should investigate a loan within weeks of it first becoming delinquent.
investigate a loan within weeks of it first becoming delinquent.
Often, the cause of a delinquency is due to illness or unemployment. Often, the cause of a delinquency is due to illness or unemployment.
If caught early enough a lender can give the borrower assistanceIf caught early enough a lender can give the borrower assistance as well as as well as workout a equitable repayment plan.
workout a equitable repayment plan.
Challenges Challenges
Establishing the idea of Establishing the idea of access to financial services as access to financial services as human right;
human right; just like health care, education etc. are just like health care, education etc. are basic rights (Mathew Bishop, Business Editor of The basic rights (Mathew Bishop, Business Editor of The Economist)
Economist)
Managing credit risks in Managing credit risks in microlending microlending operations operations
Convincing, for profit organizations like established Convincing, for profit organizations like established banks, non
banks, non- - bank financial institutions, that microfinance bank financial institutions, that microfinance is a good business opportunity and they should commit is a good business opportunity and they should commit large capital to establish this business.
large capital to establish this business.
Also convincing them that charity (funds donated by established Also convincing them that charity (funds donated by established organization) is not a sustainable way for growth
organization) is not a sustainable way for growth
Developing a market driven interest rate schedule for Developing a market driven interest rate schedule for the poor
the poor
Challenges … Challenges …
Reaching people in sparsely populated, diverse, not easy to reach, Reaching people in sparsely populated, diverse, not easy to reach, and geographically scattered areas
and geographically scattered areas
Last mile problem of reaching the rural poor.Last mile problem of reaching the rural poor.
Most important challenge is to exploit technology to reduce Most important challenge is to exploit technology to reduce transaction costs so that financial institutions will indeed tak
transaction costs so that financial institutions will indeed take up e up microfinance as one of their major service.
microfinance as one of their major service.
Reaching the poorest of the poor –Reaching the poorest of the poor – the destitute:the destitute:
Many ignore this segmentMany ignore this segment
Very difficult for a commercial institution to recover micro-Very difficult for a commercial institution to recover micro-credit given credit given to this segment
to this segment
Here Government will have to step n develop a scheme for micro-Here Government will have to step n develop a scheme for micro-grantsgrants
Make microfinance part of main stream financial marketMake microfinance part of main stream financial market
Data Collection –Data Collection – need to collect data that can indicate need to collect data that can indicate
Rural ATM Providing ICT based Rural Banking
• Developed by the TeNet group of IIT-Madras
• To be deployed in village kiosks in collaboration with ICICI bank
• Low cost rural bank
• Deposits, withdrawal, and loans
• Cost of rural ATM: Rs40,000/=
• Conventional ATM costs:
Rs.7,50,000/=
• Uses extremely low cost finger print authentication system (Rs.50/=)
• Use of plastic ID cards “smart or otherwise” not viable in rural
areas
One Approach exploiting ICT
Exploit Cell
Exploit Cell - - phone, phone, Smart
Smart - - Phone Platform Phone Platform
Growing at a phenomenal pace Growing at a phenomenal pace
Nov. 2003, 26.7 mil cell Nov. 2003, 26.7 mil cell phones
phones
Oct. 2005, 55.0 milOct. 2005, 55.0 mil
Cost of deployment in urban Cost of deployment in urban areas:
areas:
Landlines –Landlines – Rs.20,000 per lineRs.20,000 per line
Cellular ---Cellular --- Rs.5,000 per lineRs.5,000 per line
Annual business of handset Annual business of handset reaching
reaching Rs.10,000 Rs.10,000 crorecrore ($220 mil)
($220 mil), comparable to , comparable to color televisions
color televisions –– indicating indicating affordability.
affordability.
14 mil new connections across 14 mil new connections across the country by all operators the country by all operators between Nov 03 to Nov 04, between Nov 03 to Nov 04,
Only .7 mil connections were Only .7 mil connections were provided in rural areas by provided in rural areas by BSNL.
BSNL.
Only ~12 mil PCs in India
Another Approach
exploiting ICT
Microfinance is a necessary input Microfinance is a necessary input
for rural wealth generation
for rural wealth generation
but by no means sufficient
but by no means sufficient
Bollywood Star Aishwarya Rai to Serve as Spokesperson for the UN International
Year of Microcredit
The The United Nations United Nations is pleased to announce that is pleased to announce that Bollywood
Bollywood leading actress Aishwarya leading actress Aishwarya Rai Rai has graciously has graciously accepted an invitation to become a spokesperson for the accepted an invitation to become a spokesperson for the International Year of
International Year of Microcredit Microcredit 2005. 2005.
As a spokesperson for the Year, Rai As a spokesperson for the Year, Rai will play an active will play an active role in raising awareness of the main goals and priorities role in raising awareness of the main goals and priorities of the United Nations' poverty alleviation efforts.
of the United Nations' poverty alleviation efforts.
She will also promote the activities of the International She will also promote the activities of the International Year of
Year of Microcredit Microcredit and work to extend its public and work to extend its public
outreach. In particular, she will be appearing in a public outreach. In particular, she will be appearing in a public service announcement for the Year.
service announcement for the Year.
By Elizabeth Littlefield By Elizabeth Littlefield
CGAP (Consultative Group to Assist the Poor) CEO CGAP (Consultative Group to Assist the Poor) CEO
and World Bank Director and World Bank Director
But perhaps the most important question facing our (microfinance) But perhaps the most important question facing our (microfinance) industry today is the extent to which technology will be able to
industry today is the extent to which technology will be able to bring bring down transaction costs to enable commercial players to really se
down transaction costs to enable commercial players to really serve rve this market globally.
this market globally.
The secret to microfinance has been that poor people repay The secret to microfinance has been that poor people repay
faithfully. We know that they do so because they value the acces faithfully. We know that they do so because they value the access s to services. Do we think they might pay back money into a machin to services. Do we think they might pay back money into a machine e as faithfully as they have paid back their loan officer at weekl
as faithfully as they have paid back their loan officer at weekly y meetings?
meetings?
If the answer is yes -If the answer is yes - and if we were able to build national identity and if we were able to build national identity systems that underpinned credit scoring models, and to develop t systems that underpinned credit scoring models, and to develop the he delivery technologies
delivery technologies -- could thousands of commercial banks reach could thousands of commercial banks reach the last mile of a poor, rural community profitably without loan
the last mile of a poor, rural community profitably without loan officers, except perhaps at account opening?
officers, except perhaps at account opening?
India: Scaling
India: Scaling - - up Access to Finance for the up Access to Finance for the Rural Poor
Rural Poor
Despite the large size and depth of the Indian financial system,Despite the large size and depth of the Indian financial system, the the majority of the rural poor do not have access to formal finance
majority of the rural poor do not have access to formal finance and and financial services. For this reason, innovative microfinance
financial services. For this reason, innovative microfinance
initiatives pioneered by nongovernmental organizations strove to initiatives pioneered by nongovernmental organizations strove to create links between commercial banks, NGOs, and informal local create links between commercial banks, NGOs, and informal local groups. Better known as "SHG Bank Linkage," this model has
groups. Better known as "SHG Bank Linkage," this model has effectively targeted poorer segments of the rural population and effectively targeted poorer segments of the rural population and helped reduce their vulnerability. The remarkable growth of SHG helped reduce their vulnerability. The remarkable growth of SHG Bank Linkage is largely attributable to good policy and skillful
Bank Linkage is largely attributable to good policy and skillful and and committed leadership in conjunction with a facilitating governme committed leadership in conjunction with a facilitating government nt policy and legal framework. In addition, the emphasis on quality
policy and legal framework. In addition, the emphasis on quality and and product customization were also key elements in the SHG Bank
product customization were also key elements in the SHG Bank Linkage's success. Even though several challenges lie ahead, the Linkage's success. Even though several challenges lie ahead, the SHG movement has the right ingredients to be scaled
SHG movement has the right ingredients to be scaled--up into up into offering mass access to finance for the rural poor while improvi offering mass access to finance for the rural poor while improving ng sustainability.
sustainability.
Bangladesh made remarkable progress in its micro-Bangladesh made remarkable progress in its micro-finance industry, finance industry, providing credit access to some 13 million poor households
providing credit access to some 13 million poor households
Progress Chart of SEWA Bank for the year 2000-2001
13,35,85,000 10,67,49,000
8,97,26,000 9,05,74,000
90,036,000 Loans & Advances
(Rs.)
50,849 44,187
39,284 33,709
30,936 No. of loans &
Advances Accounts
84,90,95,000 62,54,26,000
38,99,79,000 30,75,30,000
2,59,226,000 Working Capital
(Rs.)
62,39,28,000 46,43,91,000
26,81,22,000 21,09,71,000
1,76,437,000 Total Deposits
(Rs.)
2,02,706 1,72,010
1,13,583 1,39,611
1,12,750 No. of Accounts
1,48,72,000 1,17,77,000
1,10,19,000 1,08,72,000
10,281,000 Share Capital (Rs.)
29,595 26,793
25,464 25,011
24,045 No. of members
2002 - 03 2001 - 02
2000-2001 1999-2000
1998-99 Particulars
