A MINOR PROJECT REPORT

ON
A STUDY OF MICROFINANCE : A MARKETING PERSPECTIVE

Submitted in partial fulfillment of requirement of Bachelor of Business

Administration(BBA)

B.B.A - IV Semester
(Evening)
Batch 2023-2026

Submitted To: Submitted by:

[Link] Sharma Sparsh Lamba
(73325501723)

JIMS ENGINEERING MANAGEMENT TECHNICAL

CAMPUS, GREATER NOIDA

1
 ACKNOWLEDGEMENT

A lot of effort has gone into this training report. My thanks are due to many people with
whom I have been closely associated.

I would like to thank all those who have contributed in the completion of this project.
First of all, I would like to send my sincere thanks to Mrs. Neeti Sharma for her
kind advices as well as the helpful hand which she provided me in order to
complete this project.

I would also like to thank my mentor for his teachings as well as training.

And last but not the least I would like to thank my entire beloved family & friends
for providing me monetary as well as non-monetary support, as and when required,
without which this project would not have completed on [Link] trust and
patience is now coming out in form of this Project.

Sparsh Lamba

(73325501723)

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 CERTIFICATE

This is to certify that Mr. Sparsh Lamba of BBA has completed her minor project “A
Study on Microfinance: A Marketing Perspective”, who carries out the project under the
partial fulfillment for the award of the degree of B.B.A of JIMS ENGINEERING
MANAGEMENT TECHNICAL CAMPUS, GREATER NOIDA under my guidance and her
work is up to mysatisfaction. This project work is original and not submitted earlier for the
award of any degree/ diploma or associate ship of any other University/ Institution.

Mrs. Neeti Sharma

4
.,
JlflS
JIMS
ENGINEERING

MANAGEMENT
TECHNICAL CAMPUS
JEMTEC

TO WHOM SO EVER IT MAY CONCERN

This is to certify that Mr. Sparsh Lamba S/o./ Mrs. Savita Batch-2023-2026,
Enrollment No.73325501723, student ofBBA, IV Semester at JIMS Engineering
Management Technical Campus, Greater Noida affiliated to Guru Gobind
Singh Indraprastha University, New Delhi, has prepared and submitted his Minor
Project Report - II on the topic,

"A STUDY OF MICROFINANCE: A MARKETING PERSPECTIVE" in the

month of May 2025.

I ce1tify that the report is the original work done in the partial fulfillment ofawarding
Degree ofBachelor ofBusiness Administration (BBA).

Name ofthe Guide: Mrs. Neeti Sharma

Signature ofthe Guide:

Date
 CONTENT

Page
S. No. Contents
No.
(i) Acknowledgement 2
(ii) Students undertaking 3
(iii) Certificate of completion 4
(iv) Table of content 5
(v) List of tables 6
(vi) Executive Summary 7
1) CHAPTER 1: Introduction to topic 10
2) CHAPTER 2: Objectives of the study 15
3) CHAPTER 3: Literature Review 17
4) CHAPTER 4: Company Profile 24
5) CHAPTER 5: Research Methodology 41
6) CHAPTER 6: Limitations 46
7) CHAPTER 7: Analysis and interpretation 53
8) CHAPTER 8: Conclusion 55
9) CHAPTER 9: Bibliography 58

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 LIST OF TABLES

TABLE NO. TOPICS PAGE NO.

Table 6.1
Annual report or the
48
year ended 31st March
2020

Financial position as
per year 2015-16
Table 6.2 50

6
EXECUTIVE SUMMARY

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Microfinance sector has grown rapidly over the past few decades. Nobel Laureate
Muhammad Yunus is credited with laying the foundation of the modern MFIs with
establishment of Grameen Bank, Bangladesh in 1976. Today it has evolved into a vibrant
industry exhibiting a variety of business models. Microfinance Institutions (MFIs) in India
exist as NGOs (registered as societies or trusts), Section 25 companies and Non-Banking
Financial Companies (NBFCs). Commercial Banks, Regional Rural Banks (RRBs),
cooperative societies and other large lenders have played an important role in providing
refinance facility to MFIs. Banks have also leveraged the Self-Help Group (SHGs) channel
to provide direct credit to group borrowers.
With financial inclusion emerging as a major policy objective in the country, Microfinance
has occupied centre stage as a promising conduit for extending financial services to
unbanked sections of population. At the same time, practices followed by certain lenders
have subjected the sector to greater scrutiny and need for stricter regulation.

The research involved study of the past literatures about the microfinance sector, related
online research papers and journals. The study also involved survey of all MFIs in the state
of Uttar Pradesh through field visits and online survey. The annual reports and the sector
reports published by regulatory bodies, MFI associations and major microfinance players
facilitated the study, especially in understanding the size, growth and past trends.
Interactions with some of the industry experts helped in understanding and analysing the
emerging concerns in the microfinance sector and also to look for some possible solutions.
Although the microfinance sector is having a healthy growth rate, there have been a
number of concerns related to the sector, like grey areas in regulation, transparent pricing,
low financial literacy etc. In addition to these concerns there are a few emerging concerns
like cluster formation, insufficient funds, multiple lending and over-indebtedness which are
arising because of the increasing competition among the MFIs. On a national level there
has been a spate of actions taken to strengthen the regulation of MF sector including,
enactment of microfinance regulation bill by the Government of Andhra Pradesh,
implementation of sector- specific regulation by Reserve Bank of

8
India and most recently, release of Draft Microfinance Institutions (development and
regulation) Bill, 2011 for comments.
Based on the research work, a few major recommendations made in the report include field
supervision of MFIs to check ground realities and the operational efficiency of such institutions.
Offer incentives to MFIs for opening branches in unbanked villages, so as to increase rural
penetration. Also MFIs be encouraged to offer complete range of products to their clients.
Transparent pricing and technology implementation to maintain uniformity and efficiency are
among the others which these institutions should adopt. Inability of MFIs in getting sufficient
funds is a major hindrance in the microfinance growth and so these institutions should look for
alternative sources of funds. Some of the alternative fund sources include outside equity
investment, portfolio buyouts and securitization of loans which only a few large MFIs are
currently availing.

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 CHAPTER-1
INTRODUCTION
TO THE TOPIC

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Microfinance is defined as any activity that includes the provision of financial services
such as credit, savings, and insurance to low income individuals which fall just above
the nationally defined poverty line, and poor individuals which fall below that poverty line,
with the goal of creating social value. The creation of social value. The creation of social
value includes poverty alleviation and the broader impact of improving livelihood
opportunities through the provision of capital for micro enterprise, and insurance and
savings for risk mitigation and consumption smoothing. A large variety of sectors
provide microfinance in India, using a range of microfinance delivery methods. Since
the ICICI Bank of India, various actors have endeavored to provide access to
financial services to the poor in creative ways. Governments also have piloted
national programs, NGOs have undertaken the activity of raising donor funds for
on-lending, and some banks have partnered with public organizations or made small
inroads themselves in providing such services. This has resulted in a rather broad
definition of microfinance as any activity that targets poor and low income individuals for
the provision of financial services. The range of activities undertaken in microfinance
include group lending, individual lending, the provision of savings and insurance,
capacity building and agricultural business development services. Whatever the
form of activity however, the overarching goal that unifies all actors in the provision of
microfinance is the creation of social value.

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1.1 MICROFINANCE DEFINITION :

According to International Labor Organization (ILO), “Microfinance is an economic

development approach that involves providing financial services through institutions to
low income clients.”

In India, Microfinance has been defined by “The National Microfinance Taskforce, 1999”
as “provision of thrift, credit and other financial services and products of very small
amounts to the poor in rural, semiurban or urban areas for enabling them to raise their
income levels and improve living standards.”
“The poor stay poor, not because they are lazy but because they have no access to
capital.”
The dictionary meaning of ‘finance’ is management of money. The management of money
denotes acquiring & using money. Microfinance is buzzing word, used when financing for
micro entrepreneurs. Concept of micro finance is emerged in need of meeting special
goal to empower under-privileged class of society, women, and poor, downtrodden by
natural reasons or men made; caste, creed, religion or otherwise. The principles of Micro
Finance are founded on the philosophy of cooperation and its central values of equality,
equity and and mutual self-help. At the heart of these principles are the concept of human
development and the brotherhood of man expressed through people working together to
achieve a better life for themselves and their children.

1.2 CONCEPT AND FEATURES OF MICROFINANCE:

Microfinance is called upon to provide financial services to the poor with low income. It is
referred to the grant of a small loan by a bank or any other financial institution as well as
to the provision of other facilities including insurance, savings, and money transfer. These
basic financial services help people save, invest, and generate their income. Potential
loan debtors might have enough income or collateral but they still cannot appeal to banks
because they require too small amount. Taking into account that informal financial
relationships with village moneylenders lead to very high costs for borrowers,
microfinance institutions are often very much to the point. To assuage doubts about what
microfinance actually implicates, two more facts about the definition should be
considered:

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 Microfinance does not deal solely with money making activities. Such programs also
provide help in the form of essential living costs, medical or educational expenses.
 Microfinance does not represent a phenomenon of developing countries. There is a need
for such programs worldwide.

The development of a more client-responsive, market-led approach to Microfinance is an

important watershed in an industry hitherto largely dominated by the misconception that
simple replication of successful models could achieve massive and sustainable scale
worldwide. As Hulme notes, “Ironically it is the success of the “first wave” finance for the
poor schemes…that is the greatest obstacle to future experimentation” (Hulme, 1995
quoted in Rogaly, 1996). For most MFIs responding to the market has been largely in
terms of developing new products that meet the needs of their clients. But some others
are beginning to move towards a strategic marketing approach that looks at corporate
branding and identity as well as product delivery system and customer service strategies
in addition to the product strategy. There are many benefits in doing this for both the
MFIs and their clients. For the MFI a market-led approach enhances customer loyalty
and reduces drop-outs and thus increases profitability (Churchill and Halpern, 2001). For
the MFIs’ customers more appropriate, client-responsive products allow them to better
manage their household finances with a variety of financial services and products, in
which they have confidence, delivered through systems and people that are secure,
efficient and satisfying.

The microfinance industry is beginning to mature, and with maturity comes change.
There are four alternative concepts on which organisations conduct their activities –
these represent the development of marketing philosophy. The concepts have
characterised the maturation of most industries over time, and are also clearly
discernable in the microfinance industry. The process of maturation has typically (but not
always) been linear with the industry passing through each phase before moving to the
next. These concepts for organisational activities are:

Production: which focuses on producing goods/services as cheaply as possible;

Product: which focuses on making the goods/services as high quality as possible;

Selling: which focuses on persuading potential customers to buy the goods/services

being produced; and
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Marketing: which focuses on understanding the target market(s) needs and responding
to these in all aspects of the organisation’s operations.

The challenges raised above cover a broad range of operational issues, from product
development to product delivery systems all set in the context of understanding the
competitive environment or “financial landscape”. They also encompass human resource
management, staff incentive systems, IT systems and physical infrastructure
development. This diverse range of core functions affected by a market-led approach
present a significant problem for MFIs – and indeed corporations operating in almost
every industry worldwide. A market-led approach, by definition, affects almost every
aspect of the business, and thus the Marketing Director needs to be a master of
networking, alliance-building and collaborative working within the organisation.

The transition to a market-led approach to microfinance often starts with relatively

modest product development. But those MFIs seriously committed to this, soon find that
a market orientation requires long-term and fundamental changes in approach, mind-set
and systems of almost every part of their business. The rewards of making the transition
to a market-led approach are very significant and manifested in a startling variety of
ways: staff satisfaction, customer loyalty, developmental impact and higher profitability.
Several of MicroSave’s Action Research Partners, including Equity Building Society in
Kenya, Tanzania Postal Bank, Uganda Microfinance Union and Teba Bank in South
Africa, are already reaping the benefits of moving to an increasingly market-led approach
and using strategic marketing as a core value and driving force of their institutions. These
institutions are already implementing most of the components of the framework
presented in this paper and under-going rapid transformation and growth as a direct
consequence.

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 CHAPTER 2:
OBJECTIVES OF THE STUDY

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 To study the concept of microfinance in India.
 To study how microfinance institutions helps in development of the economy.
 To know about microfinance institutions in India .
 To understand about the marketing perspective of microfinance and study about the
strategies.

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 CHAPTER-3
LITERATURE REVIEW

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Although the word finance is in the term microfinance, and the core elements of
microfinance are those of the finance discipline, microfinance has yet to break into the
mainstream or entrepreneurial finance literature. The purpose is to introduce the finance
academic community to the discipline of microfinance and microfinance institutions
(MFIs). Throughout the world, poor people are excluded from formal financial systems.
Exclusion ranges from partial exclusion in developed countries to full or nearly full
exclusion in lesser developed countries (LDCs). Absent access to formal financial
services, the poor have developed a wide variety of informal, community-based financial
arrangements to meet their financial needs. In addition, over the last two decades, an
increasing number of formal sector organizations (non-government, government, and
private) have been created for the purpose of meeting those same needs. Microfinance
is the term that has come to refer generally to such informal and formal arrangements
offering financial services to the poor. Microfinance has existed, although mostly in the
shadows and unseen by casual observers, since the rise of formal financial systems, and
indeed probably predates them. It has only been within the last four decades, however,
that serious global efforts have been made to formalize financial service provision to the
poor. This process began in earnest around the early to mid-1980s and has since
gathered an impressive momentum. Today there are thousands of MFIs providing
financial services to an estimated 100 - 200 million of the world’s poor (Christen et al.,
(1995)). What began as a grass-roots ―movement motivated largely by a development
paradigm is evolving into a global industry informed increasingly by a commercial/finance
paradigm. The rise of the microfinance industry represents a remarkable accomplishment
taken within historical context. It has overturned established ideas of the poor as
consumers of financial services, shattered stereotypes of the poor as not bankable,
spawned a variety of lending methodologies demonstrating that it is possible to provide
costeffective financial services to the poor, and mobilized millions of dollars of

18
―social investment‖ for the poor (Mutua, et al. (1996)). It must be emphasized too that
the animating motivation behind the microfinance movement was poverty alleviation. Not
only that, but microfinance offered the potential to alleviate poverty while paying for itself
and perhaps even turning a profit—―doing well by doing good. This potential, perhaps
more than anything, accounts for the emergence of microfinance onto the global stage.
Scholarly interest in microfinance has lagged behind industry development, but it too is
now growing rapidly. Before 1997, academic journals published only an occasional article
on microfinance, but since that time, academic journals have published hundreds of peer-
reviewed articles on the topic. Nonetheless, microfinance has yet to break into finance
journals. This despite the term finance in microfinance and the fact that the basic products
offered by microfinance institutions (MFIs)—namely investing (savings), lending (credit
services), and insurance (risk management)—are all well-established topics of
mainstream finance research. The purpose of this paper, therefore, is to introduce
microfinance to the academic finance community and to provide an outline for future
research. Toward these goals, we provide a synthesized review of over 350 critically-
reviewed articles that address at least one component of [Link] a few
exceptions, we focus on peerreviewed articles, because we judge these to be of most
interest to the academic finance [Link] journal with the most articles is Small
Enterprise Development Journal (SED), which has published 102 articles on microfinance
since its inception in 1990. This is followed in order by The Journal of Microfinance, (JMF)
with 57 articles since its initial issue in the Fall of 1999, World Development (WD) with 25
articles, The Journal of Developmental Entrepreneurship (JDE) with 23 articles, and the
Journal of International Development (JID) with 21 articles. SED, JMF, and JDE focus
exclusively or predominantly on microfinance or the closely related topic of micro and
small enterprise development, while WD and JID are multidisciplinary journals addressing
topics of broad interested to international development. Sixty-four percent of the articles
reviewed for this study (228/357) have appeared in one of the above five journals. The
remaining 36

19
 percent are dispersed among 78 other journals, 56 of which have published a single
article on microfinance. The genre of these other journals includes economics,
international development, public policy, public administration, law, statistics, and
organizational behavior, among others. In order to present a coherent and succinct
review of the broad microfinance literature, we divide our review into six areas of
microfinance that, in our judgment, currently define the field. Within each area, we
identify key topics, focusing on issues important to a finance audience, and we discuss
the relevant peer-reviewed articles in each section. Accordingly, the remainder of the
article proceeds as follows. We address institutional sustainability, or the notion that
MFIs need to be financially self-sufficient (free of subsidies) for optimal results. Section
II discusses products and services offered by MFIs, and Section III addresses socalled
"best practice" pertaining to MFI management and development. In Sections IV and
V, respectively, we address client targeting and microfinance policy and regulation.
Section VI discusses issues related to assessing the social impact of microfinance and
Section VII concludes.

I. The Self-Sufficiency and Sustainability of MFIs Unlike formal sector financial

institutions, the large majority of MFIs are not "sustainable," where sustainability is
equated in microfinance literature and parlance with financial self-sufficiency.4
Instead, most MFIs are able to operate without covering their costs due to subsidies
and gifts from governments and other donors. Notwithstanding, the microfinance
industry is dominated by an institutionist paradigm (Morduch (2000), Woller et al.
(1999a)) asserting that an MFI should be able to cover its operating and financing
costs with program revenues. The conceptual foundations of the institutionist
paradigm stem to a large degree from the work of researchers at the Ohio State
University’s Rural Finance Program. Their analysis of the failed rural credit agencies
established by several LDC governments during the 1960s and 1970s diagnosed the
primary cause of failure to be the ―lack of institutional viability‖ (Gonzalez-Vega
(1994)). This diagnoses led logically to two principal conclusions:

 institutional sustainability was key to successful provision of financial services to the

poor and
 financial self-sufficiency was a necessary condition for institutional sustainability.

20
The institutionist argument is consistent with Hollis and Sweetman (1998a) who discuss
six historical cases in an attempt to identify the institutional designs that facilitated
success and sustainability for 19th century loan funds in the UK, Germany, and Italy.
The authors conclude that subsidized loan funds were more fragile and lost focus more
quickly than those that obtained funds from depositors. In contrast, Welfarists take odds
with institutionists over the issue of sustainability. Welfarists argue that MFIs can
achieve sustainability without achieving financial self-sufficiency (Morduch (2000),
Woller et al. (1999a)). They argue that donations serve as a form of equity, and as
such, the donors can be viewed as social investors. Unlike private investors who
purchase equity in a publicly traded firm, social investors do not expect to earn
monetary returns. Instead, these donor-investors realize a social, or intrinsic, return.
Social investors can be compared to equity investors who invest in socially responsible
funds, even if the expected riskadjusted return of the socially responsible fund is below
that of an index fund. These socially responsible fund investors are willing to accept a
lower expected financial return because they also receive the intrinsic return of not
investing in firms that they find offensive. Microfinance social investors take this notion
to the limit, generally earning zero financial returns and relying totally upon intrinsic
returns. Welfarists tend to emphasize poverty alleviation, place relatively greater weight
on depth of outreach relative to breath of outreach, and gauge institutional success
more so according to social metrics.6 This is not to say that neither breadth of outreach
nor financial metrics matter. Welfarists feel these issues are important, but they are
less willing than institutionists to sacrifice depth of outreach to achieve them. Welfarists
envision an industry characterized by a plurality of institutional types—including both
profit-seeking and social-mission entities—targeting different markets, with different
combinations of market and non-market funding, and with different levels of
commitment to social versus financial return. Morduch (2000) refers to the debate
between institutionists and welfarists as the ―microfinance schism. Driving the schism
are competing perceptions of the implications for financial self-sufficiency on depth of
outreach. General consensus holds that there exists a tradeoff between financial self-
sufficiency and depth of outreach (e.g., von Pischke (1996)). But masked by this
consensus is much disagreement about the nature, extent, and implications of this
tradeoff. Nonetheless, what little evidence exists suggests that those MFIs that have
achieved true financial self-sufficiency have also tended to loan to borrowers who were
either slightly above or slightly below the poverty line in their respective countries

21
(Navajas et al., (2000)). These MFIs are able to capture economies of scale by
extending larger loans to the marginally poor or non-poor. Although still an open
question, this limited evidence leads many to conclude that if financial selfsufficiency is
desired, then the very poor will not be reached by MFI services. That is, the MFI will
not be able to achieve enough depth to reach those who need credit the most
desperately. An important area of financial research that has yet to be rigorously
explored but which has significant potential to inform the debate mentioned above is
the feasibility of introducing microfinance into the world capital markets. With the high
repayment rates of many MFIs (e.g., upper 90 percent in many cases), there exists the
potential to tap MFIs into world capital markets through instruments such as
commercial banks loans, commercial paper, bond financing, equity financing, or
through the bundling and securitization of MFI loans. Determining avenues to permit
investment in MFIs via capital markets is an area of research that seems tailored to the
tools and theory of finance academics. In practice, there are currently several ongoing
attempts to tap capital market investors for MFI funding. The ACCION Gateway Fund
makes equity, quasi-equity, and debt investments in
MFIs with a proven track record of financial sustainability. The AfriCap Microfinance
Fund makes equity investments in African-based MFIs, as well as financing technical
assistance for said MFIs. Blue Orchard Finance promotes private investments in
microfinance by identification and analysis of MFIs and investment monitoring and
reporting of its funds. Using a venture capital approach, ProFund International is an
investment fund that attempts to earn a competitive return for its shareholders while
facilitating MFI growth. Finally, the Community Reinvestment Fund provides a
secondary market for microfinance loans by securitizing the microloans and
collateralizing bonds that are sold to private investors.7 If capital markets can be
tapped to give MFIs the needed funds to be self-sufficient, and if investors can earn
returns commensurate with the risk borne, the vision of a poverty-alleviation
mechanism that pays for itself (both implicit and explicit costs) may be realized in
greater proportions. Issues surrounding MFI sustainability and selfsufficiency, and the
implications/tradeoffs implied therein seem well-suited for finance researchers. Few
rigorous studies have been conducted in a financial institutions framework to develop
and test theory pertaining to MFI selfsufficiency. Some evidence does exist however,
that MFIs have historically been very resilient and sustainable. Hollis and Sweetman
(2001) discuss the microloan funds in 18th and 19th century Ireland. They report that

22
Irish loan funds thrived for over 100 years due to their ability to change rapidly to
external conditions, at one point providing financial services for 20% of Ireland's
population. It took a combination of formal bank lobbying that resulted in anti-MFI
legislation and the Irish potato famine to cause the demise of these early loan funds.
Patten et al. (2001) provide a more recent historical example of the resilience of MFIs
and their clientele. They compare the performance of the Indonesian MFI Bank Rakyat
Indonesia (BRI) to formal Indonesian banks during the East Asian financial crisis. They
find that BRI performed superior to the formal banking sector when comparing both
loan repayment rates and savings rates of members. Having discussed MFI
selfsufficiency and sustainability, we now turn our attention to the products and
services offered within the current microfinance framework.

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 CHAPTER 4 –
COMPANY PROFILE

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4.1 MICROFINANCE - A JOURNEY OF PROGRESS

In the 1970s a paradigm shift started to take place. The failure of subsidized
government or donor driven institutions to meet the demand for financial services
in developing countries let to several new approaches. Some of the most prominent
ones are presented below.

Bank Dagan Bali (BDB) was established in September 1970 to serve low income
people in Indonesia without any subsidies and is now “well-known as the earliest bank
to institute commercial microfinance”. While this is not true with regard to the
achievements made in Europe during the 19th century, it still can be seen as a turning
point with an ever increasing impact on the view of politicians and development aid
practitioners throughout the world.

In 1973 ACCION International, a United States of America (USA) based

nongovernmental organization (NGO) disbursed its first loan in Brazil and in

1974 Professor Muhammad Yunus started what later became known as the

Grameen Bank by lending a total of $27 to 42 million to people in Bangladesh. One year
later the Self-Employed Women's Association started to provide loans of about $1.5
million to poor women in India. Although the latter examples still were subsidized
projects, they used a more business oriented approach and showed the world that
poor people can be good credit risks with repayment rates exceeding 95%, even if
the interest rate charged is higher than that of traditional banks. Another milestone
was the transformation of BRI starting in 1984. Once a loss making institution
channeling government subsidized credits to inhabitants of rural Indonesia it is now the
largest MFI in the world, being profitable even during the Asian financial crisis of 1997 -
1998.

25
In February 1997 more than 2,900 policymakers, microfinance practitioners and
representatives of various educational institutions and donor agencies from 137
different countries gathered in Washington D.C. for the first Micro Credit
Summit. This was the start of a nine yearlong campaign to reach 100 million of the
world poorest households with credit for self employment by 2005. According
to the Microcredit Summit Campaign Report 67,606,080 clients have been reached
through 2527 MFIs by the end of 2002, with 41,594,778 of them being amongst the
poorest before they took their first loan. Since the campaign started the average
annual growth rate in reaching clients has been almost 40 percent. If it has continued
at that speed more than 100 million people will have access to microcredit by now and
by the end of 2005 the goal of the microcredit summit campaign would be reached. As
the president of the World Bank James Wolfensohn has pointed out, providing
financial services to 100 million of the poorest households means helping as many
as 500 - 600 million poor people.

4.2 PRESENT SCENARIO OF MICROFINANCE IN INDIA

Microfinance sector has covered a long journey from micro savings to micro credit
and then to micro enterprises and now entered the field of micro insurance,
micro remittance, micro pension and micro livelihood. This gradual and evolutionary
growth process has given a great boost to the rural poor in India to reach
reasonable economic, social and cultural empowerment, leading to better life of
participating households. Financial institutions in the country have been playing a
leading role in the microfinance programme for nearly two decades now. They have
joined hands proactively with informal delivery channels to give microfinance
sector the necessary momentum. During the current year too, microfinance has
registered an impressive expansion at the grass root level.

The year 2008-09 is the third year that the data on progress in microfinance sector
have been presented on the basis of returns furnished directly to NABARD by
Commercial Banks (CBs), Regional Rural Banks (RRBs) and Cooperative Banks
operating in the country. The data includes the information related to savings of Self
Help Groups (SHGs) with banks as on 31 March 2009, loans disbursed by banks to
SHGs during the year 2008-09 and outstanding

26
loans of SHGs with the banking system and the details of NonPerforming Assets
(NPAs) and recovery percentage in respect of bank loans provided to SHGs as on 31
March 2009. The data received from banks have been compiled on region-wise, State-
wise and agency-wise basis in this booklet.

The banks operating, presently, in the formal financial system comprises of Public
Sector Commercial Banks (27), Private Sector Commercial Banks (28), Regional Rural
Banks (86), State Cooperative Banks (31) and District Central Cooperative Banks
(371). It is observed that most of the banks participating in the process of microfinance
have reported their progress under the programme.

NABARD has been instrumental in facilitating various activities under

microfinance sector, involving all possible partners in the arena. It has been
encouraging the voluntary agencies, bankers, and socially spirited individuals, other
formal and informal entities and also government functionaries to promote and nurture
SHGs. The focus in this direction has been on training and capacity building of
partners, promotional grant assistance to Self Help Promoting Institutions (SHPIs),
Revolving Fund Assistance (RFA) to MFIs, equity/ capital support to MFIs to
supplement their financial resources and provision of 100% refinance against bank
loans provided by various banks for microfinance activities.

4.3 SUCCESS FACTORS OF MICRO-FINANCE IN INDIA

Over the last ten years, successful experiences in providing finance to small
entrepreneur and producers demonstrate that poor people, when given access to
responsive and timely financial services at market rates, repay their loans and use the
proceeds to increase their income and assets. This is not surprising since the only
realistic alternative for them is to borrow from informal market at an interest much higher
than market rates. Community banks, NGOs and grass root savings and credit groups
around the world have shown that these microenterprise loans can be profitable
for borrowers and for the lenders, making microfinance one of the most effective
poverty reducing strategies.
4.4 LIST OF NATIONALIZED BANKS WHO PROVIDE MICRO
FINANCE SERVICES:

27
 • Allahabad Bank
• Bank Of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Punjab National Bank
• Punjab & Sind BANK
• Union Bank of India
• Corporation Bank

 Private Sector Commercial Banks

• HDFC Bank
• ICICI Bank
• Kotak Mahindra Bank
• Axis Bank
• Yes Bank

4.5 NEED & SCOPE OF MICROFINANCE

Micro financing very much needed in India.

1. Microfinance connects the weakest links to Doaba region economy of

Punjab.

2. There is very less chances of loan defaulter cases in Micro financing rather
than in other financing ways.

3. In Micro financing the finance is for the basic things of survival and everyone
want to survive and sustain.

There is huge scope of Micro finance for Rural India. Just see the way in which SKS
Micro finance is expanding its operations at pan India level. Need of Micro- finance is
there due to commercial banks not coming forward to lend money to rural poor.

28
(1) Regulation of microfinance institutions

• Provision of saving services

• Product innovation
• Organizational issues in microfinance
• Poverty impact of microfinance

4.6 MAIN GOAL OF FINANCIAL INLUSION:

Each type of microfinance institution is different from the other in many
ways but they work towards the same goal- financial inclusion. Due to
their operational frameworks, some models have been less successful
than the others in attaining this objective. In addition to the above,
microfinance institutions can also be categorised into large, medium and
small scale. These institutions differ in terms of geographical reach,
infrastructure, manpower skills availability, funding and lending
processes, revenues and success in operations. These differences are
explored further in the proceeding article.

4.7 MICROFINANCE DEBATES AND CHALLENGES:

• Loan Pricing :
Before determining loan prices, one should take into account the following
costs:

1) administrative costs by the bank (MFI)

2) transaction cost by the client/customer

Customers, on the other hand, may have expenses for travelling to the bank
branch, acquiring official documents for the loan application, and loss of time
when dealing with the MFI (“opportunity costs”). Hence, from a customer's point
of view the cost of a loan is not only the interest and fees she/he has to pay,
but also all other transaction costs that she/he has to cover.

One of the principal challenges of microfinance is providing small loans at an

affordable cost. The global average interest and fee rate is estimated at 37%,
with rates reaching as high as 70% in some [Link] reason for the high
29
interest rates is not primarily cost of capital. Indeed, the local microfinance
organizations that receive zero-interest loan capital from the online
microlending platform Kiva charge average interest and fee rates of 35.21%.
Rather, the main reason for the high cost of microfinance loans is the high
transaction cost of traditional microfinance operations relative to loan size.

Microfinance practitioners have long argued that such high interest rates are
simply unavoidable, because the cost of making each loan cannot be reduced
below a certain level while still allowing the lender to cover costs such as offices
and staff salaries. For example, in Sub-Saharan Africa credit risk for
microfinance institutes is very high, because customers need years to improve
their livelihood and face many challenges during this time. Financial institutes
often do not even have a system to check the person's identity. Additionally
they are unable to design new products and enlarge their business to reduce
the risk. The result is that the traditional approach to microfinance has made
only limited progress in resolving the problem it purports to address: that the
world's poorest people pay the world's highest cost for small business growth
capital. The high costs of traditional microfinance loans limit their
effectiveness as a poverty-fighting tool. Offering loans at interest and fee rates
of 37% mean that borrowers who do not manage to earn at least a 37% rate of
return may actually end up poorer as a result of accepting the loans.

According to a recent survey of microfinance borrowers in Ghana published by

the Center for Financial Inclusion, more than one-third of borrowers surveyed
reported struggling to repay their loans. Some resorted to measures such as
reducing their food intake or taking children out of school in order to repay
microfinance debts that had not proven sufficiently profitable. In recent years,
the microfinance industry has shifted its focus from the objective of increasing
the volume of lending capital available, to address the challenge of providing
microfinance loans more affordably. Microfinance analyst David Roodman
contends that, in mature markets, the average interest and fee rates charged
by microfinance institutions tend to fall over time., global average interest rates
for microfinance loans are still well above 30%.

• Women:

30
Microfinance provides women around the world with financial and nonfinancial
services, especially in the most rural areas that do not have access to
traditional banking and other basic financial infrastructure. It creates
opportunities for women to start-up and build their businesses using their own
skills and talents.

Utilizing savings, credit, and microinsurance, Microfinance helps families create

income-generating activities and better cope with risk. Women particularly
benefit from microfinance as many microfinance institutions (MFIs) target
female clients. Most microfinance institutions (MFIs) partner with other
organizations like [Link] and Habitat for Humanity to provide additional
services for their clients.

Microfinance's emphasis on female-oriented lending is the subject of

controversy, as it is claimed that microfinance improves the status of women
through an alleviation of poverty. It is argued that by providing women with initial
capital, they will be able to support themselves independent of men, in a
manner which would encourage sustainable growth of enterprise and eventual
self-sufficiency. This claim has yet to be proven in any substantial form.
Moreover, the attraction of women as a potential investment base is precisely
because they are constrained by socio-cultural norms regarding such
concepts of obedience, familial duty, household maintenance and passivity.
The result of these norms is that while micro-lending may enable women to
improve their daily subsistence to a more steady pace, they will not be able to
engage in market-oriented business practice beyond a limited scope of low-
skilled, low-earning, informal work. Part of this is a lack of permissivity in the
society; part a reflection of the added burdens of household maintenance that
women shoulder alone as a result of microfinancial empowerment; and part a
lack of training and education surrounding gendered conceptions of economics.
In particular, the shift in norms such that women continue to be responsible for
all the domestic private sphere labour as well as undertaking public economic
support for their families, independent of male aid increases rather than
decreases burdens on already limited persons.

4.8 MICROFINANCE INSTITUTIONS

31
 Microfinance institutions (MFIs) are financial companies that provide small
loans to people who do not have any access to banking facilities. The definition
of “small loans” varies between countries. In India, all loans that are below Rs.1
lakh can be considered as microloans. The different types of institutions that
offer microfinance are:

• Credit unions

• Non-governmental organisations

• Commercial banks

Some government banks also offer microfinance to the eligible categories of

borrowers.

Although most microfinance institutions target the eradication of poverty as their

primary motive, some of the new entrants are focussed on the sale of more
products to consumers.

 Goals of Microfinance Institutions:

Microfinance institutions have been gaining popularity in the recent years and
are now considered as effective tools for alleviating poverty. Most MFIs are
well-run with great track records, while others are quite self-sufficient. The
primary goals of microfinance institutions are the following:

• Transform into a financial institution that assists in the development of

communities that are sustainable.

• Help in the provision of resources that offer support to the lower

sections of the society. There is special focus on women in this regard,

as they have emerged successful in setting up income generation
enterprises.
• Evaluate the options available to help eradicate poverty at a faster rate.

• Mobilise self-employment opportunities for the underprivileged.

• Empowering rural people by training them in simple skills so that they

are capable of setting up income generation businesses.

32
 As per World Bank data, close to 1.7 billion people across multiple
countries do not have access to basic financial services. This is where
microfinance institutions play a major role.

 Key Benefits

The part that microfinance plays in economic development is noteworthy. Some

of the key benefits of MFIs include the following:

• It enables people expand their present opportunities – The income

accumulation of poor households has improved due to the presence of

microfinance institutions that offer funds for their businesses.
• It provides easy access to credit – Microfinance opportunities provide

people credit when it is needed the most. Banks do not usually offer
small loans to customers; MFIs providing microloans bridge this gap.
• It makes future investments possible– Microfinance makes more

money available to the poor sections of the economy. So, apart from
financing the basic needs of these families, MFIs also provide them
with credit for constructing better houses, improving their healthcare
facilities, and exploring better business opportunities.
• It serves the under-financed section of the society – Majority of the

microfinance loans provided by MFIs are offered to women.

Unemployed people and those with disabilities are also beneficiaries
of microfinance. These financing options help people take control of
their lives through the betterment of their living conditions.
• It helps in the generation of employment opportunities – Microfinance

institutions help create jobs in the impoverished communities.

• It inculcates the discipline of saving – When the basic needs of people

are met, they are more inclined to start saving for the future. It is good
for people living in backward areas to inculcate the habit of saving.
• It brings about significant economic gains – When people participate in

microfinance activities, they are more likely to receive better levels of

consumption and improved nutrition. This eventually leads to the
growth of the community in terms of economic value.

33
• It results in better credit management practices – Microloans are

mostly taken by women borrowers. Statistics prove that female

borrowers are less likely to default on loans. Apart from providing
empowerment, microloans also have better repayment rates as women
pose lesser risk to borrowers. This improves the credit management
practices of the community.
• It results in better education – It has been noted that families benefiting

from microloans are more likely to provide better and continued

education for their children. Improvement in the family finances imply
that children may not be pulled out of school for monetary reasons.

4.9 GROUPS ORGANISED BY MICROFINANCE INSTITUTIONS

IN INDIA:
There are several types of groups organised by microfinance institutions for
offering credit, insurance, and financial training to the rural population in India:

1. Joint Liability Group (JLG):

This is usually an informal group that consists of 4-10 individuals who seek
loans against mutual guarantee. The loans are usually taken for agricultural
purposes or associated activities. Farmers, rural workers, and tenants fall into
this category of borrowers. Each individual in a JLG is equally responsible for
the loan repayment in a timely manner. This institution does not need any
financial administration, as it is simple in nature.

2. Self Help Group (SHG):

A Self Help Group is a group of individuals with similar socio-economic

backgrounds. These small entrepreneurs come together for a short duration
and create a common fund for their business needs. These groups are
classified as non-profit organisations. The group takes care of the debt
recovery. There is no requirement of a collateral in this kind of group lending.
The interest rates are generally low as well. Several banks have had tie-ups
with SHGs with a vision to improve financial inclusion in the rural parts of the
country.

34
 The NABARD SHG linkage programme is noteworthy in this regard, as several
Self Help Groups are able to borrow money from banks if they are able to
present a track record of diligent repayments.

3. Grameen Model Bank:

The Grameen Model was the brainchild of Nobel Laureate Prof. Muhammad
Yunus in Bangladesh in the 1970s. It has inspired the creation of Regional Rural
Banks (RRBs) in India. The primary motive of this system is the end-toend
development of the rural economy. However, in India, SHGs have been more
successful as MFIs when compared to Grameen Banks.

4. Rural Cooperatives:

Rural Cooperatives were established in India at the time of Indian

independence. The resources of poor people were pooled in and financial
services were provided from this fund. However, this system had complex
monitoring structures and were beneficial only to the creditworthy borrowers in
rural India. Hence, this system did not find the success that it sought initially.

4.10 DIFFERENCE BETWEEN JLGs AND SHGs

• SHGs are units oriented to the communities when compared to JLGs.

Members own and control SHGs and they decide all terms and
conditions associated with the group’s functioning. Banks and NGOs
provide support to these units so that they can prosper.
• SHGs have internal control, but this can lead to conflict among

members. JGs are controlled externally by the institutions that promote

them. The terms and conditions of the JLG are also determined by the
promoting institution. The operations of JLGs are more standardised and
easier to replicate, when compared to SHGs.
• Under an SHG, the group members will be required to save before they

are eligible for a loan. In a JLG model saving is not compulsory; groups
need not build internal capital for inter-loaning. Most of the times, MFIs
initiate the formation of JLGs by asking members to form such groups
with the motive of getting a loan.

35
• Donor agencies support SHGs in skill development and capacity building

through NGOs. This process of internal capacity building makes the

process of getting a bank loan more time-consuming for an SHG. Since
JLGs are managed externally, there is very little focus on capacity
building. Hence, these units may find it easier to procure loans. JLGs
are hence, referred to as “fast growth models”. SHGs are more
decentralised and democratic than JLGs.
• SHGs are self-managed and self-reliant. Hence, an MFI representative

has to spend very little time over the management of the group. This
implies that several groups can be managed by a single representative,
resulting in low cost management. In the JLG model, the MFI’s
employees are responsible for monitoring the routine operations of the
group. This makes it an expensive model.
• JLGs are more immune to internal and external threats as they have

better protection from the supporting MFIs. However, they are less
empowered in comparison to SHGs.

4.11 TOP MICROFINANCE COMPANIES IN INDIA:

1. Equitas Small Finance:
The lender offers small loans between Rs.2,000 and Rs.35,000 to the
Economically Weaker Section (EWS) and Low Income Group categories in the
country.

2. ESAF Microfinance and Investments (P) Ltd:

ESAF Microfinance is a leading MFI in India that has empowered more than 4
lakh members through its 150 branches. It offers an extensive range of
business development and financial services to the economically and socially
challenged members of the society. The institution offers a bouquet of loan
products to suit the varied needs of customers.

3. Fusion Microfinance Pvt Ltd:

Fusion Microfinance is an RBI registered NBFC-MFI that works on a JLG
lending model of Grameen. The institution offers loans to women in the rural

36
and semi-urban regions. Apart from offering financial support and insurance
protection, the company also imparts financial literacy to its customers.

4. Annapurna Microfinance Pvt Ltd:

The purpose of Annapurna Microfinance is to provide loans to the financially
underserved population. Technical and financial education is also imparted to
beneficiaries to strengthen their entrepreneurial skills. It is one of the top ten
NBFC-MFIs in India today.

5. Arohan Financial Services Limited:

Eastern India’s largest NBFC MFI, Arohan Financial Services Limited offers
financial inclusion products to 1.9 million customers throughout India. The local
partners of the company help in improving its reach to remote locations.
Non-financial products are also offered by the company at affordable costs.
Arohan also has an MSME lending business in its portfolio.

6. BSS Microfinance Limited:

The company offers microloans to poor women so that they can be part of
income generating activities that bring them out of poverty. The institution offers
loans in the states of Maharashtra, Karnataka, Tamil Nadu, and Madhya
Pradesh.

7. Asirvad Microfinance Limited:

This microfinance institution has an extensive network of branches throughout
22 states in India. It offers microloans to women entrepreneurs from lowincome
households for income generation activities. Currently, three types of loans are
offered to borrowers, i.e., Product Loan, Income Generation Program (IGP)
Loan, and Small and Medium Enterprise (SME) Loan.

8. Cashpor Micro Credit:

Cashpor is a microfinance institution that works towards bringing the
economically backward sections of the society out of poverty. The products
offered by the company include credit facilities, savings services, insurance
coverage, and pension services.

Loan Details:

37
Credit facilities offered by Cashpor is predominantly for undertaking income
generation activities. Loans are also provided for non-income generation
activities and acquisition of assets that improve the health and social status of
the beneficiaries. For instance, loans for the construction of toilets, women
empowerment, and the procurement of gas connections are commonly offered
by the company.

9. Bandhan Financial Services Limited:

The motive of the institution is to reduce socio-economic poverty by generating

employment opportunities for low-income households. Cost- effective financial

and non-financial products are provided in this regard.

10. Fincare Business Services Limited - The Fincare group

consists of two NBFC-MFIs, i.e., Disha Microfin Ltd. (now referred to as
Fincare Small Finance Bank) and Future Financial Services Pvt. Ltd.
(FFSPL). The company caters to the semi-urban and rural households of
the country, offering Microenterprise Loans (MEL) and loan against gold
with quick disbursals.

MARKETING PERSPECTIVE
For most MFIs responding to the market has been largely in terms of developing
new products that meet the needs of their clients. But some others are
beginning to move towards a strategic marketing approach that looks at
corporate branding and identity as well as product delivery system and
customer service strategies in addition to the product strategy. There are many
benefits in doing this for both the MFIs and their clients. For the MFI a market-
led approach enhances customer loyalty and reduces drop-outs and thus
increases profitability (Churchill and Halpern, 2001). For the MFIs’ customers
more appropriate, client-responsive products allow them to better manage their
household finances with a variety of financial services and products, in which
they have confidence, delivered through systems and people that are secure,
efficient and satisfying.

38
The microfinance industry is beginning to mature, and with maturity comes
change. There are four alternative concepts on which organisations conduct
their activities – these represent the development of marketing philosophy. The
concepts have characterised the maturation of most industries over time, and
are also clearly discernable in the microfinance industry. The process of
maturation has typically (but not always) been linear with the industry passing
through each phase before moving to the next. These concepts for
organisational activities are:

Production: which focuses on producing goods/services as cheaply as

possible;

Product: which focuses on making the goods/services as high quality as

possible;

Selling: which focuses on persuading potential customers to buy the

goods/services being produced; and

Marketing: which focuses on understanding the target market(s) needs and

responding to these in all aspects of the organisation’s operations.

The marketing concept takes an outside-in perspective. The organisation tries

to see itself from the client’s perspective, and base its decisions (subject to
financial and organisational constraints) on this perspective. Organisations
using the marketing concept recognise that there is more value in retaining
customers than in attracting new customers who cost more. This concept works
more at identifying and meeting customers’ needs profitably in addition to
maximising customer satisfaction with existing products.

MicroSave reviewed the marketing strategies of eight diverse Action Research

Partners (ARPs) in collaboration with TMS Financial a marketing company
based in South Africa. These ARPs include a wide variety of organisations:

NGO-MFIs (FINCA-Uganda and Uganda Microfinance Union)

Commercial banks (Centenary Rural Development Bank and Teba Bank)

Government owned financial institutions (Kenya Post Office Savings Bank and
Tanzania Postal Bank)

39
Non-bank financial institutions (Equity Building Society and Credit Indemnity).
This diversity allowed the reviewers to gain significant insights into generic
issues facing the industry.

40
 CHAPTER-5
RESEARCH METHODOLOGY

41
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. In research
we study the various steps that are generally adopted by a researcher in studying his
research problem along with the logic behind them. It is necessary for the researcher
to know not only the research techniques but also the methodology. Researchers not
only need to know how to develop certain indices or tests, how to calculate the mean,
the mode, the median or the standard deviation or chi-square, how to apply particular
research techniques, but they also need to know which of these methods or techniques,
are relevant and which are not. Researchers also need to understand the assumptions
underlying various techniques and they need to know the criteria by which they can
decide that certain techniques and procedures will be applicable to certain problems
and others will not. All this means that it is necessary for the researcher to design his
methodology for his problem as the same may differ from problem to problem.
Research is equally important for social scientists in studying social relationships and
in seeking answers to various social problems. It provides the intellectual satisfaction
of knowing a few things just for the sake of knowledge and also has practical utility for
the social scientist to know for the sake of being able to do something better or in a
more efficient manner. Research in social sciences is concerned both with knowledge
for its own sake and with knowledge for what it can contribute to practical concerns.
This double emphasis is perhaps especially appropriate in the case of social science.
On the one hand, its responsibility as a science is to develop a body 87 of principles
that make possible the understanding and prediction of the whole range of human
interactions. On the other hand, because of its social orientation, it is increasingly being
looked to for practical guidance in solving immediate problems of human relations.

42
5.1 THERE ARE 2 SOURCES TO COLLECT DATA:
PRIMARY DATA AND SECONDARY DATA:
Primary data is data that is collected by a researcher from first-hand sources,
using methods like surveys, interviews, or experiments. It is collected with the
research project in mind, directly from primary sources.
The term is used in contrast with the term secondary data. Secondary data is
data gathered from studies, surveys, or experiments that have been run by
other people or for other research.
Typically, a researcher will begin a project by working with secondary data.
This allows time to formulate questions and gain an understanding of the
issues being dealt with before the more costly and time consuming operation
of collecting primary data.

 This project is completely based on Secondary Data

Example of Primary Data & Secondary Data

Let’s say you were researching trauma in burn survivors; You would typically
begin your study by going through the literature on the subject. Data gleaned
both from published papers and unpublished research notes would be
secondary data. Although it isn’t primary data, it could give you invaluable
information nonetheless. If you decided to go on to collect primary data, the
secondary data would give you what information you need to know where to
begin.
If you took a trip to a trauma unit and interviewed burn survivors, the data
collected in that phase of your research would be primary data.
If one of your interviewees puts you in touch with a burn survivor support group,
and you are given access to a database of information about the psychological
state of a large group of survivors in the years following the burn incident, that
would also be secondary, not primary, data.

5.2 Limitations of Primary Data

While primary data collection is a powerful method for acquiring information, it
does pose several significant problems including:

43
Cost

Compared to secondary research, primary data may be very expensive since

there is a great deal of marketer involvement and the expense in preparing and
carrying out research can be high.
Time Consuming

To be done correctly primary data collection requires the development and

execution of a research plan. Going from the starting point of deciding to
undertake a research project to the end point of having results is often much
longer than the time it takes to acquire secondary data.
Not Always Feasible

Some research projects, while potentially offering information that could prove
quite valuable, are not within the reach of a marketer. Many are just too large
to be carried out by all but the largest companies, and some are not feasible at
all. For instance, it would not be practical for McDonalds to attempt to interview
every customer who visits their stores on a certain day since doing so would
require hiring a huge number of researchers, an unrealistic expense.
Fortunately, there are ways for McDonalds to use other methods (e.g.,
sampling) to meet their needs without the need to talk with all customers.

5.3 Limitations of Secondary Data

While secondary research is often valuable, it also has drawbacks that include:
Quality of Researcher

As we will discuss, research conducted using primary methods are largely

controlled by the marketer. However, this is not the case when it comes to data
collected by others. Consequently, the quality of secondary research should
be scrutinized closely since the origins of the information may be questionable.
Organizations relying on secondary data as an important component in their
decision-making (e.g., market research studies) must take extra steps to
evaluate the validity and reliability of the information by critically evaluating how
the information was gathered, analyzed, and presented.
Not Specific to Researcher’s Needs

Secondary data is often not presented in a form that exactly meets the
marketer’s needs. For example, a marketer obtains an expensive research
44
report that looks at how different age groups feel about certain products within
the marketer’s industry. Unfortunately, the marketer may be disappointed to
discover that the way the research divides age groups (e.g., under 13, 14-18,
19-25, etc.) does not match how the marketer’s company designates its age
groups (e.g., under 16, 17-21, 22-30, etc.). Because of this difference the
results may not be useful.
Inefficient Spending for Information

Since the research received may not be specific to the marketer’s needs, an
argument can be made that research spending is inefficient. That is, the
marketer may not receive a satisfactory amount of information for what is
spent.

45
CHAPTER – 6
LIMITATIONS

46
1) TIME CONSTRAINT:

Shortage of time was a very big constraint due to which

some area of microfinance has been included in the study.

2) RESOURCE CONSTRAINT:
Availability of the data was a constraint due to which only
secondary data is considered which is available, and also there
are some MFIs whose data was not available.

3) SECONDARY DATA:
All the information available was from secondary sources and
data was very vastto analyze properly and accurately.

4) WIDE AREA TO STUDY:

Study being conducted was very wide & analysis require
expertise knowledge & skills which was lacking.

5) NO DIRECT SOURCE OF INFORMATION

AVAILABLE:
The information is collected from indirect sources so in some
information data is not available.

6) FUTURE ANALYSIS:
The whole study was based on historical data which was not
much useful in analysis of present and prediction of future.

47
 CHAPTER – 7
ANALYSIS
AND
INTERPRETATION

48
 1: BSS MICROFINANCE LTD.

The Company is a wholly owned subsidiary of Kotak Mahindra Bank

Limited. The Company is working as a Business Correspondent (BC) of
Kotak Mahindra Bank Limited and the nature of operation is facilitating
micro finance for poor. As on 31st March 2020, the Company has been
facilitating micro credit for income generating activities and for quality of
life improvement activities, to 6,53,921 poor women borrowers and their
families.

Marketing perspective of BSS Microfinance Ltd.:

The ultimate goal of BSS Microfinance is to alleviate poverty on a large

scale by offering microfinance services to impoverished women. By doing
so, BSS Microfinance hopes to increase earnings, improve money
management skills and increase the quality of life overall.

The microfinance business has focused almost exclusively on women.

Approximately 93 percent of all microfinance loans are given to women
in order to encourage entrepreneurial pursuits.

It has become a way to address women living in poverty. Currently, 70

percent of the world’s poor are women. Unequal access to education,
property, jobs and politics puts these women at a further disadvantage,
making it difficult to achieve financial stability and independence.

Currently, the company is geared toward a group-based lending program

that provides loans solely to women living in Karnataka and Maharashtra.
Numerous restrictions exist with this system of lending; for instance, the
woman must be between 18 and 53 years old, must be married and must
have the approval of her husband in order to join the program.

The ultimate hope, of course, is that improving the welfare of individuals

will help the nation as a whole. Recent reports have indicated that in
India, at least, this is proving true. Between 2011 and 2012, India
reduced its number of impoverished people from 407 million to 269

49
 million. By capitalizing on the microfinance industry in India, BSS
Microfinance has helped women financially productive members of
society, striking a blow against poverty throughout the country.

Financial position of the company:

Particulars Year ended 31st Year ended 31st
March 2020(Rs. In March 2019 (Rs.
Lakhs) In Lakhs)
Gross income 19,767.98 15,889.80
Profit before tax 7,718.44 7,866.35
Provision for tax 1,878.38 2,337.41
Profit for the period 5,840.06 5,528.94
Total Comprehensive Income for the period 5,817.48 5,542.34
Source : BSS microfinance ltd. Fy 2020
Table 6.1: Annual report or the year ended 31st March 2020

As on 31st March 2020, the Company has been facilitating micro credit
for income generating activities and for quality of life improvement
activities, to 6,53,921 poor women borrowers and their families. The
Asset Under Management (AUM), increased from Rs.1,273.78 crs as on
31st March 2019 to Rs 1,890.30 crs as on 31st March 2020, an increase
of 48% on Y-o-Y basis. The categories of loan purposes include Animal
Husbandry (62%), Petty Trading (14%), Petty Manufacturing (11%),
Petty Services (7%), Agriculture (2%) and Life Quality Improvement
Loans (4%).

2: CASHPOR:
CASHPOR began operations in 1997 as CASHPOR Financial and
Technical Services (CFTS) – a financial company offering microfinance
services to the poor, in Mirzapur District, Uttar Pradesh. In 2002,
CASHPOR Micro Credit registered itself as a not-for-profit Section 25
company (a subsidiary of CFTS), under the Indian Companies Act 1956
50
 to enable continuous and seamless services to its clients. In December
2002, following the RBI notification allowing only registered NBFCs and
section 25 companies to conduct micro finance services, CFTS
transferred all it micro finance activities to CMC. Since then all the
companies’ microfinance operations are run under CMC. Currently
CASHPOR operates in Uttar Pradesh, Bihar, Chhattisgarh, Madhya
Pradesh and Jharkhand through 501 branches.

MARKETING PERSPECTIVE :

• SMERA estimates the MFI sector to grow at a CAGR of 20%-25% and

is expected to touch Rs.100000 crore by the end of FY2019.

• MFIs have reported an increase of ~58% in average loan per borrower

in FY2016 as compared to FY2014. SMERA believes seasoned

customer profile over multiple loan cycles have helped MFIs to increase
its loan ticket size.

• The fund flow to the sector has improved on account of increased

confidence on MFI sector coupled with reduction in interest rate (100-
150 bps). Further large MFIs are exploring the route of Non-convertible
debentures (NCDs) and Pass through Certificates (PTCs); whereas
small –mid size MFIs have an increased access to funds from banks and
financial institutions

• Support systems such as Self-Regulatory Organizations (SRO), Credit

Information Bureaus (CIB) among others have been established to
ensure credit check and process adherence among MFIs. This
regulatory framework has brought more accountability and transparency
within the sector.

• On the contrary, recent demonetization drive restrained MFIs

disbursement and collection process which has moderated microfinance
sector growth in FY2016-17 as compared to the previous year.

FINANCIAL POSITION:

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 • Income from operations for CMC has increased in the last
three years. CMC has reported PAT of Rs.134584 (in
thousands) on total income of Rs.1600509 (in thousands) in
FY2016 as compared to PAT of Rs.122685 (in thousands) on
total income of Rs.1498946 (in thousands) in FY2015.

The profitability and operating efficiency indicators are

comfortable for the past two years. The

details are as follows:

Profitability / Sustainability Ratios 2015 2016

Yield on Portfolio (%) 23.4 20.5

Operational Self Sufficiency (%) 108.9 109.1

Operating Expense Ratio (OER) 6.99 7.93

Funding Expense Ratio (FER) 11.85 10.18

Return on Assets (RoA) 1.8 1.82

Return on Equity (RoE) 12.81 11.83

Portfolio at Risk (>30 days) (%) 0.10 0.21

Source: Caspor Microcredit

Table:6.2- Financial position as per year 2015-16

3: FUSION MICROFINANCE LTD.:

Fusion Microfinance is a registered NBFC–MFI, which operates in a Joint

Liability Group lending model. It provides financial services to underserved
women in rural and semi- urban areas in India.

Marketing perspective:

When they started their journey, there were primarily three goals that were
driving them:
A) To reach out to the unserved and underserved sections of our population;

52
 B) To be known as a responsible lender;
C) To be the ‘Employer of Choice’ in the BFSI sector In India.
Fusion now serves 1.8 million active customers and, in turn, households across
18 states in India through a network of 591 branches, 5,490 people, a
cumulative disbursement of ~ `10,000 crore and an active portfolio of `3,606.52
crore as of March 2020. - Fusion’s relentless focus on putting customer first and
building complete transparency in dealings/offerings has been an integral part
of our value system. The trust our external stakeholders/lenders repose on us
is reflected in the over50% repeat business volume generated on the average
over the last few years.
 They have developed the Mobile Phone as an ‘Operative Device’ for sourcing,
approving, processing, disbursing and collecting …..creating a leaner work flow
architecture.
 They have automated their customer facing processes including new customer
acquisition and disbursement and management of their existing portfolio.
 They have automated their document management system.
 They have established real time system integration with external agencies
/bureaus for accurate updated inputs for Business Potential Mapping and
decision making.
 We have created system that allow them to review customer coverage criteria
given the diversity of demographics and potential density across the country.
 They have facilitated online data capturing, bureau, bank and KYC validation
to optimize upstream filters.

FINANCIAL POSITION:

 Their loan application processing through their Mobility

Platform increased from 15% as on March 31, 2019 to 100%
as on March 31, 2020 even as they added 22.87% more
customers in this period. This platform will emerge as the pivot
of their aspiration - to expand our reach effectively while
remaining nimble.

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 The share of their cashless disbursements increased from
48.12% of the total pie on March 31, 2019 to 59.26% a year
later, even when the total pay out widened by 11.4%.
 Their asset quality has improved over the previous year –
Gross NPA’s stood at 1.12% as on March 31, 2020 against
1.55% on March 31, 2019.

UPCOMING TRANSFORMATIONS:

 They are developing technology solutions which will make them

proactive as opposed to being reactive to opportunities and
adversities.
 They will leverage robotics for process automation of manual and
repetitive jobs.
 They plan to utilise Machine Learning as a tool to build prediction
models.
 They are leveraging system intelligence tools to provide early
delinquency signal.

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CHAPTER – 8
CONCLUSION

55
In focusing on microfinance, emphasis has been laid on the need that poor
people have for a wide range of financial services. These needs are
evidenced by the uses made of financial services that already exist but which
are usually informal in nature. This shift in emphasis away from the provision
of credit solely for income generation towards a range of financial services is
consistent with an understanding of poverty which looks beyond low incomes
to vulnerability and powerlessness. Providing microfinance can give poor
people the means to protect their livelihoods against shocks as well as to build
up and diversify-also a means of protecting-their livelihood activities by
investing loan capital.

The role of credit in promoting incomes has been the rationale for NGO
programmes in this sector in the past. However, obtaining one or two loans
has rarely resulted in sustained improvements in income for poor people.
Moreover, even if very poor people are able to invest successfully,
unexpected shocks can undo any gains very quickly. Thus, the poorest are
likely to need to build up a degree of security before investment and growth
become possible.

In any place at any time, the needs of poor people for financial services are
many and varied depending on individual circumstances: some will be saving
for the future, while others will be facing a crisis, and still others wish to obtain
a loan to invest. A programme of flexible services which can be adapted to
meet these different needs is more likely to be relevant and useful to poor
people.

Consequently we have suggested that the NGO should carefully and honestly
assess whether it has the appropriate skills and resources before beginning
work. Acquiring or developing the specialist skills is a long-term commitment
which itself requires substantial investment of funds. Poor people's needs for
financial services are enduring and long-term. An NGO considering whether to
provide services must understand the need for a commitment to do so for a
considerable length of time: the 30 years or more of a bank's existence, rather
than the three to five years of donor funding arrangements.

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There are alternatives to becoming a direct provider of services. An NGO can
play a useful role in promoting financial services. This can make use of an
NGO's skills in mobilisation, training, and management in establishing groups
who undertake internal and credit; promoting user-owned small-scale
initiatives such as thrift co-operatives and credit unions; linking groups to
banks; bringing in an NGO which has special expertise in financial services (of
whom there are a growing number); or undertaking advocacy within the
country to involve the formal banking system in microfinance.

57
CHAPTER-9
BIBLIOGRAPHY

58
 Morduch, J. (1999). The microfinance promise. Journal of
economic literature, 37(4), 1569-1614

 Morduch, J. (2000). The microfinance schism. World

development, 28(4), 617-629.

 De Aghion, B. A., Armendáriz, B., & Morduch, J. (2007). The

economics of microfinance.

 Mahanta, Panda, Sreekumar. Status Of Microfinance In India - A

Review. International. Journal of Marketing, Financial Services &
Management Research 2012; 1(11).

 NABARD. Status of microfinance in India, Annual Report of

National Bank for Agriculture and Rural Development.

 Debadutta P. Self Help through Microfinance: A Paradigm Shift in

Orissa, India. International Journal of Rural Studies 2008; 15(1).

 The economics of microfinance

 Business Today

 Microfinance in India (by K.G. Karmakar )

 Microfinance perspectives and operations 2E

 The Economic Times

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