Microfinance

Microfinance services are financial services that poor people desire and are willing to pay for. The term also refers to the practice of sustainably delivering those services. It refers to a movement that envisions a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. Microfinance encompasses any financial service used by poor people, including those they access in the informal economy, such as loans from a village moneylender. In practice however, the term is usually only used to refer to institutions and enterprises whose goals include both profitability and reducing the poverty of their clients. Microfinance services are needed everywhere, including the developed world. However, in developed economies intense competition within the financial sector, combined with a diverse mix of different types of financial instituitions with different missions, ensures that most people have access to some financial services. Efforts to transfer microfinance innovations such as solidarity lending from developing countries to developed ones have met with little success. Microfinance can also be distinguished from charity. It is better to provide grants to families who are destitute, or so poor they are unlikely to be able to generate the cash flow required to repay a loan. This situation can occur for example, in war zone or after a natural disaster.

Evolution of Microfinance in India

•Microfinance has been in practice for ages ( though informally). •Legal framework for establishing the co-operative movement set up in 1904. •Reserve Bank of India Act, 1934 provided for the establishment of the Agricultural Credit Department.
•Nationalisation of banks in 1969. •Regional Rural Banks created in 1975. •NABARD established as an apex agency for rural finance in 1982. •Passing of Mutually Aided Co-op. Act in AP in 1995.

Status of Microfinance in India

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•There is considerable gap between demand and supply for all financial services in India. •Majority of poor are excluded from financial services. This is due to, inter-alia. Bankers feel that it is fraught with risks and uncertainties, h.high transaction costs.3. Unfavourable policies like caps on interest rates which effectively limits the viability of serving the poor. While MFIs have shown that serving the poor is not an unviable proposition there are issues that have constrained MFIs while scaling up. These include

• 1.Lack of an appropriate legal vehicle
  
• 2.Limited access to equity
• 3.Difficulty in accessing low cost on-lending funds.
• •Limited access to Capacity Building support which is an important variable interms of quality of the portfolio, MIS, and the sustainability of operations.
• About 56 % of the poor still borrow from informal sources
• 70 % of the rural poor do not have a deposit account
• 87 % have no access to credit from formal sources.
• Less than 15 % of the households have any kind of insurance.
• •Negligible numbers have access to health insurance (0.4 %) and crop insurance (0.2 %).

Reliance Capital launches Microfinance Initiative

Anil Ambani group’s financial services arm Reliance Capital on Monday launched its microfinance initiative here with tie-ups for two States, which, it said, would be followed by a national rollout soon. Reliance Capital is joining hands with two Gujarat-based microfinance institutions — MAS Financial Services and Vardan Trust — as part of its initiative to enhance penetration of microfinance in the country. The initiative was launched by group chairman Anil Ambani’s wife Tina Ambani, who handed over the first disbursement cheques.Reliance Capital said it planned to fund MFIs in Gujarat and Maharashtra in the first phase, and subsequently have a national presence. “Our vision is to provide access to finance at the grassroots level by partnering with MFIs, serving the rural and semi-urban areas. This initiative is in line with the group’s commitment to play a serious role in bringing value to the lives of the underprivileged and the aged in India,” Ms. Tina Ambani told reporters. “The initiative envisages lending to MFIs, which would then be on-lending finances to self help groups, individuals and joint liability groups as per their norms,” Reliance Consumer Finance’ Deputy CEO K. V. Srinivasan said.

MFI --> Microfinance Institute

Sources : www.microfinance.in/presentation/sou.ppt