Micro Economics

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Information about Micro Economics

Published on February 27, 2014

Author: srivastava4

Source: slideshare.net

Microfinance in India

What is Microfinance ? According to famous economist Robinson, Microfinance refers to smallscale financial services for both credits and deposits - that are provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services . Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

Provision of financial services such as credit, saving, and insurance Poor individuals which fall below the poverty line Group lending, individual lending , the provision of savings and insurance, capacity building, and agricultural business development services Creation of social value

Muhammad Yunus Born in Bangladesh in 1940 Graduated from Vanderbilt University, Nashville, TN, in 1970 with a Ph.D. in Economics Professor of Economics at Chittagong University in Bangladesh In 1974, during a field trip with his Economic students, he made his first “micro” loan of $27.00 to a woman in a poor village that made bamboo stools In 1983, Dr. Yunus founded the Grameen Bank In 2006, Dr. Yunus was awarded the Nobel Peace Prize

Microfinance in India Major Microfinance activities followed in India are – 1. Micro credits 2. Micro savings 3. Small scale Insurance

Salient features of Microfinance: Borrowers are from the low income group Loans are of small amount – micro loans Short duration loans Loans are offered without collaterals High frequency of repayment Loans are generally taken for income generation purpose

Advantages ▓It provides a long-term increase in income and consumption of poor families. ▓Access to credit helps the poor to smooth cash flows and avoid periods where access to food, clothing, shelter, or education is lost. ▓Credit make it easier to manage shocks like sickness of a wage earner, theft, or natural disasters.

▓ It provides support to Micro Enterprises . Thus booster support to Entrepreneurship among the jobless people . ▓Plays an important role in Women Empowerment , particularly in Developing countries like India.

Disadvantages Disadvantages to the Micro-lenders: 1. To the bank the borrowers are few for the problem of reaching out to the people. 2. A main disadvantage to microfinance is that the deal is too small for the lender to devote ample time and money to doing proper due diligence. 3.As the capital is low the profits are also low.

4 .Borrowers seldom if ever give lenders the full story on their situation and with a small amount at risk, it does not make sense for lenders to spend a lot of money to check out the story. When lenders get burned, they decide to stop lending and the next round of lending must be done by greenhorns who have no idea what they are getting into. 5.In other words, to some extent microlending depends on an ever-increasing number of lenders in order to be successful

HOW DOES MICROFINANCE HELPS IN ECONOMIC DEVELOPMENT? Encourages entrepreneurship and independence from government aid and/or subsidies Provides “poor” people the opportunity to earn sustainable income which in turn allows for a better standard of living Increases in disposable income can lead to future development and growth Has a positive influence on social indicators—education, health, nutrition) Empower the poor which can correlate directly with political democracy and economic development

State Wise Position Of MFIs SL NO. NO. Of MFIs Share % Andhra Pradesh 484 62 Bihar 44 6 Gujarat 8 1 Jharkhand 1 0 Karnataka 20 3 Kerala 18 2 Madhya Pradesh 14 2 Maharashtra 15 2 Orissa 28 4 Rajasthan 18 2 Tamil Naidu 101 13 Uttar Pradesh 5 1 West Bengal 30 4

Growth Data From Year 2003-2007

The Problems of Mainstream MFIs Borrower Unfriendly Products and Procedures Inflexibility and Delay High Transaction Costs, both Legitimate and Illegal Social Obligation and not a Business Opportunity Financing to Alternative MFIs Complexity in Legal and Regulatory Framework

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