A Thesis onA general study on micro finance. Its positives and negatives to society.
By CHINMAYA H P IUD NO 0801214200
A report submitted in partial fulfillment of the requirements of THE MBA PROGRAM (The Class of 2010)Page | 1
This is to certify that the Management Thesis titled ___________________________________ ______________________________________________________________________submitte d during Semester _________________ of the MBA Program (The Class of 2010) embodies original work done by me.
Signature of the Student Name (in Capitals) Enroll Number Campus :______________________________________________________ : ______________________________________________________ : ______________________________________________________
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ICFAI NATIONAL COLLEGE FIRST FLOOR SONA HONDA BH ROAD SHIMOGA Ref number: date:
The project report of CHINMAYA H P.
A general study on micro finance. Its positives and negatives to society.is approved and is acceptable in quality and form
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I here by declare that the thesis entitled
A general study on micro finance. Its positives and negatives
Submitted in partial fulfillment of the assignments for the degree of
Master of Business AdministrationTo ICFAI National College Shimoga. It is my original work and not submitted for the award of any other degree, diploma, fellowship, or any other similar title or prizes.
IUD No: 0801214200Page | 4
First, I would like to thank The Almighty for his perpetual blessings and guidance through out this thesis work. I express my deep sense of gratitude to our Campus head and the faculty guide for this thesis work MR. Ramachandra Gunari, ICFAI national college shimoga, for providing me an opportunity and continuous encouragement for doing this thesis. His suggestions benefited immensely. Further, he also provided me with valuable inputs and guidance in writing this project.
I thank all the staff of Dharmastala SIRI Gramodyoga samasthe[R], for their valuable guidance, and also I would like to thank Pragathi and all other self help group for the valuable information, co-operation and support, which has been a major contributing factor in the completion of this thesis.
I also like to remember and thank all the respondents who cooperated and answered all my questions with patience. Last but not the least, I thank my family and well wishers for their encouragement and support who have stood by me during this project.
CHINMAYA.H.PPage | 5
CONTENTS1. Introduction.09 1.1 Micro credit.....................................................................................12 1.2 Self help groups.....12 1.3 Grameen bank groups......13 1.4 Why Grameen in Bangladesh and SHGs in India...14 1. Literature review..18 2. Objectives..25 3. Research design and methodology..26 4. Methodology of research..27 5. Data collection27 6. Scope of the study28 7. Theoretical framework30 8.1. Difference between conventional banking and microfinance banking.31 8.2. Between micro credit and microfinance..33 8.3. Impact of microfinance on poverty.33 8.4. Microfinance clients.34 8.5. Micro finance for the economically active poor35Page | 6
8.6. Main micro financing programs36 8.7. Significance of microfinance institutions37 9. Leading views on microfinance39 9.2. Poverty lending approach..39 9.3. Financial systems approach40 9.4. Sustainability of the micro finance programs.40 9.5. Supply lending & poverty lending approach42 9.6. Demand driven and financial system approach.44 9.7. Target market45 9.8 objectives of the micro finance institutions46 10. Impacts..48 10.1. Moral hazards48 10.2. Mandatory savings48 10.3. Cash flows49 10.4. Social collateral49 11. Discussions and implications..51
12. Negatives and critics about MFIs...59
12. Micro finance: challenges ahead.63
14. References ..68Page | 7
CHAPTER - IIntroduction1.1 Micro credit 1.2 Self help groups 1.3 Grameen groups 1.4 Why Grameen in Bangladesh and SHGs in India
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1. INTRODUCTION:Kofi Annan said, Let us be clear: micro finance is not the charity. It is the way to extend the same rights and resources to low income households that are available to everyone else. It is recognition that poor people are the solution, not the problem. It is way to build their ideas, energy and vision. It is a way to grow productive enterprise and to allow communities to prosper
We can say poverty in India is predominantly rural in character. Micro finance is one of the many ways to help in increasing the incomes and eradicating poverty in rural side. Fighting poverty is one of the core objectives of the Millennium Development Goals. Micro Finance is the best way to eradicate poverty and to empower people. Micro finance is the newly emerging financial industry. It has the target market of more than 1.8 billion people in the whole world. The microfinance institutions have a pivotal role to play in a society marked by economic classes. By providing small loans to poor people, these institutions attempt to provide remedies to the woes of the deprived class. Apart from this, it is through these institutions that poor people are able to avail small loan facilities on reasonable terms and interest rates. In the absence of these institutions the poor people are more likely to fall prey to the exploitation of money lenders, who are more likely to exploit the poor masses by providing loans on enormously high rates.Page | 9
We can see many number of self help group across. Serving micro credit facilities is the main purpose of this self help groups. These groups has served nearly 33 million Indians till now as per the statistics given from the government side and in that, 4 out of 5 microfinance clients in India are women. It means micro finance is helping the women and making them empowered for the better.
Still micro finance has some bad remarks and negatives regarding its activities. As per the different articles and other different sources, they say micro finance is sucking the blood of poor by charging extremely high interest rates and other charges. As different articles say like, Micro-finance institutions on a looting spree, making profits from poverty. Poverty has literally become a big and organized business. If you are educated, and looking for a profitable business enterprise, and more so if you are a non-resident Indian and want to translocate to India and still make millions, micro-finance offers you the right avenue.
By looking over these aspects I decided to make a general study on what exactly is a micro finance and what the micro credit institution does and how do they work in the society and many other things regarding this micro finance aspects. The Nobel Prize committee awarded the 2006 Nobel Peace Prize to Muhammad Yunus and the Grameen Bank for their efforts to create economic and social development from below. The microfinance revolution has come a long way since Yunus first provided financing to the poor in Bangladesh.Page | 10
The committee has recognized microfinance as an important liberating force and an ever more important instrument in the struggle against poverty. Almost a decade has passed that the micro finance institutions have started working properly after the micro finance ordinance. A number of the Banks emerged in the market providing micro financial services in different cities of India. Some Non Governmental Organizations (NGOs) like Shri Dharmastala SIRI Gramodyoga samasthe[R] etc... And their support programmes upgraded themselves and started delivering micro loans to the different clusters of the population as part of their service. Even some of the institutions are providing only the micro credit services. What ever but still they are in providing services. Majorly, these NGOs and the Microfinance Institutions were working under the umbrella of the govt too. Here micro finance can be defined simply as, it is defined as formal scheme designed to improve the well being of poor through better access to saving and services loans. Micro finance is not simply a way for micro credit but it is something beyond that. When we pay attention towards microfinance, we come across micro credit, self help groups, Grameen bank groups etc... So let us see what these sub branches of micro finance are.
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1.1 Micro credit: Microfinance is the provision of a wider range of financial services to the very poor and Micro credit is one of the services offered by microfinance Institutes. As mentioned in the definition of Microfinance. Micro credit is very small loan given to the poor which are considered unbankable. These people are usually unemployed or poor entrepreneurs. They lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. Micro credit is a part of microfinance, which is the provision of a wider range of financial services to the very poor.
1.2 Self help groups: A typical Self help group consists of twelve to thirty members. The group is not merely a savings and loan association, but serves as a similar group that provides a platform for a range of issues such as progress and development, awareness building, and family planning. An SHG meets regularly often weekly, and in these meetings, members contribute savings and take decisions on loans to members of the group. Group leadership is by rotation. The SHG may init