 CONCEPT
 HISTORY
 MICRO
FINANCE IN INDIA
 LEGAL STRUCTURES OF MFI IN INDIA
 ROLE IN POVERTY ALLEVIATION
 MICRO FINANCE MODELS

MICRO FINANCE refers to the provision of financial
services to low-income clients, including consumers
and the self-employed.

It includes financial services as such deposits, loans,
payment services, money transfers, insurance to poor
and low-income households.

Micro finance services are provided by:
Formal Institution (Rural and cooperative banks)
Semi-formal Institution (NGOs)
Informal Sources (Moneylenders and shopkeepers)

It refers to a movement that envisions “a world in
which poor have permanent access to an appropriate
range of high quality financial services, including not
just credit but also savings, insurance, and fund
transfers.

Two overlapping categories of micro financing are:
Poverty Lending
Micro Banking

Professor Yunus founded his Grameen Bank in 1976 i.e.
first MICROFINANCE institute.

Microfinance were used in the academic literature before
the 1980s or 1990s, the concept of providing financial
services to low income people is much older.

While the emergence of informal financial institutions in
Nigeria dates back to the 15th century, they were first
established in Europe during the 18th century as a
response to the enormous increase in poverty since the
end of the extended European wars.(1618 –1648).

Today it has 6.6 million borrowers of whom 97% are
women.
Evolution of Micro finance in India:

Micro finance has been in practice for ages ( though
informally).

Reserve Bank of India Act, 1934 provided for the
establishment of the Agricultural Credit Department.

Nationalization of banks in 1969.

Regional Rural Banks created in 1975.

Established as an apex agency for rural finance in
1982.
Micro Finance Institutions consists of:
1. As Charitable Institution These societies are registered under Societies
Registration Act, 1860.

Trusts are registered under Trust Act, 1882.

They are not allowed to raise equity and mobilize
deposits.

Such restrictions limit the availability of capital to
these MFIs.
2. As Co-operatives –
 The cooperatives have legal sanction to work as
financial intermediaries.

It is controlled by controlling authority, Registrar of the
Cooperative Societies and State Government National
Cooperatives.

They can raise share, mobilize deposits and no tax is
charged.
3. As Companies It requires initial fund of Rs.2 crore.

To obtain operating registration certificate from RBI.

They are allowed to mobilize deposits after satisfying
conditions stipulated by RBI.

Allowed to collect foreign equity upto 51%
4. As Banking Institutions It requires initial fund from 100-300 crore.

It is regulated by RBI on daily affairs.

These are allowed to deliver credit, mobilize savings
and to give insurance (under the regulation of IRDA).

Highly management and technology intensive.
Provides small loans to start a business.
 Provides housing finance.
 Inculcates habit of savings among the poor people.
 Do not demand any security while granting loans
 Charges very low rate of interest.

 Self
Help Groups (SHG) Models
 Federated SHG Models
 Grameen Bank Models
 Cooperatives Models
1.Self Help Groups:
 It has emerged as the “INDIAN” model of micro
finance.
 This has emerged as the capacity building of
community based institution.
 Small and informal groups.
 Composed either by male only or by female only.
 Members are self-selected.
 Acts as a facilitating agency.
 Main motive of SHG is to empower poor socioeconomically and improve livelihood.
2.Federated SHG:
 It comes under Societies Registration Act.
 Comprises of1000-3000 members.
 It is a three-tier structure.
 Credit giving pattern also vary.
 Federations provide insurance and housing
finance and provide bridge loans.
3.Grameen Bank:
Homogeneous group of 5 members at village level.
 Undergo 7 days compulsory training of 1-2hrs per day.
 Provides various loans such as general loan,
supplementary loan, special general, sanitation and
housing loan, etc.
 Loan repayable in 52 equal installments within a year.
 Bank charges 5% tax on productive loans.

4.Cooperative Model:
 The primary entities of CDF’s micro finance
cooperative are the women’s /men’s thrift cooperative.
 The WTC or MTC are divided into small groups ( 1050 members) to facilitate better monitoring of thrift and
repayment of loans .
 The group members nominate a group leader and the
leader enjoys the confidence of the group.
 The general body constitutes of all the members of the
primary cooperatives. The general body meets once in
a year to elect the directors, review and discuss the
other issues.

The Association provides training, management of the
loan insurance fund and inter-lending. It also plays a
support role by helping the member cooperatives in
handling accounting, auditing and other administrative
matters.