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| Microfinance Unit 2 Notes |
In this page we have Shared the Guahati University Micro-Finance BCom 4th Semester, Unit 2 "Microfinance Institutions" Notes, Which can Be Useful for B.com Exams.
MICROFINANCE
B.com 4th Sem (Hons)
UNIT-2
Microfinance Institutions
Microfinance Questions Answers for 2 Marks
1. Define Micro Finance Institutions?
Ans: Amicrofinance institution is an organization that offers financial services to low income populations. Almost all give loans to their members and many offer insurance, deposit and other services. Microfinance is increasingly being considered as one of the most effective tools of reducing poverty by enabling microcredit to the financial poor. Microfinance has a significant role in bridging the gap between the formal financial institutions and the rural poor. The Micro Finance Institutions (MFIs) accesses financial resources from the Banks and other mainstream Financial Institutions and provide financial and support services to the poor.
2. Mention two goal for MFIS?
Ans: The goal for MFIs should be:
To improve the quality of life of the poor by providing access to financial and support services; To be a viable financial institution developing sustainable communities.
3. What is the difference between microfinance and microcredit?
Ans: Getting a loan from a bank can be extremely difficult for someone with little cash income. Microcredit is a loan to the microentrepreneur by an MFI (microfinance institution). Microcredit is one component of microfinance. Other growing services include microsavings, microinsurance, and financial training programs offered by a number of MFIS.
4. Are all MFIs non-profit?
Ans: Many MFIs began as a non-profits, however, a for-profit sector has developed more recently. For-profit MFIs have drawn on large investments which allow them to distribute more funds by (at times) more efficient means. The challenge for many for-profit MFIs is achieving a balance between financial sustainability and the poverty alleviation mission of the microfinance sector. At OneSeed, all of our partners have been carefully selected because they meet our criteria and they all also happen to be non-profit MFIS.
5.Define Associations Model?
Ans: This is where the target community forms an 'association' through which various microfinance (and other) activities are initiated. Such activities may include savings. Associations or groups can be composed of youth, women; can form around political/religious/cultural issues; can create support structures for microenterprises and other work-based issues. In some countries, an 'association' can be a legal body that has certain advantages such as collection of fees, insurance, tax breaks and other protective measures. Distinction is made between associations, community groups, peoples organizations, etc, on one hand (which are mass, community based) and NGOs, etc. which are essentially external organizations.
Gauhati University Microfinance Unit 2 Microfinance Institutions Notes 4th Sem
6. Define Community Banking Model? Ans: Community Banking model essentially treats the whole community as one unit, and establishes semi-formal or formal institutions through which microfinance is dispensed. Such institutions are usually formed by extensive help from NGOs and other organizations, who also train the community members in various financial activities of the community bank. These institutions may have savings components and other income-generating projects included in their structure. In many cases, community banks are also part of larger community development programmes which use finance as an inducement for action. 7. Define Bank Guarantees Model?
Ans: As the name suggests, a bank guarantee is used to obtain a loan from a commercial bank. This guarantee may be arranged externally (through a donor/donation, government agency etc.) or internally (using member savings). Loans obtained may be given directly to an individual, or they may be given to a self-formed group. Bank Guarantee is a form of capital guarantee scheme. Guaranteed funds may be used for various purposes, including loan recovery and insurance claims. Several international and UN organizations have been creating international guarantee funds that banks and NGOS can subscribe to, to onlend or start microcredit programmes. 8. Define Credit Unions Model?
Ans: A credit union is a unique member-driven, self-help financial institution. It is organized by and comprised of members of a particular group or organization, who agree to save their money together and to make loans to each other at reasonable rates of interest. The members are people of some common bond: working for the same employer, belonging to the same church, labor union, social fraternity, etc.; or living/working in the same community. A credit union's membership is open to all who belong to the group, regardless of race, religion, color or creed. A credit union is a democratic, not-for-profit financial cooperative. Each is owned and governed by its members, with members having a vote in the election of directors and committee representatives. 9. Define Group Model?
Ans: The Group Model's basic philosophy lies in the fact that shortcomings and weaknesses at the individual level are overcome by the collective responsibility and security afforded by the formation of a group of such individuals. The collective coming together of individual members is used for a number of purposes: educating and awareness building, collective bargaining power, peer pressure etc. The Group model is closely related to, and has inspired, many other lending models. These include Grameen, community banking, village banking, self help, solidarity, peer pressure etc. 10. Define Intermediaries Model?
Ans: Intermediary model of credit lending positions a 'go between' organization between the lenders and borrowers. The intermediary plays a critical role of generating credit awareness and education among the borrowers (including, in some cases, starting savings programmes. These activities are geared towards raising the 'credit worthiness' of the borrowers to a level sufficient enough to make them attractive to the lenders. The links developed by the intermediaries could cover funding, programme links, training and education, and research. Such activities can take place at various levels from international and national to regional, local and individual levels.
Dibrugarh University Microfinance Unit 2 Microfinance Institutions Notes 4th Sem
11. Define ROSCA Model?
Ans: Rotating Savings and Credit Associations or ROSCAS, are essentially a group of individuals who come together and make cyclical contributions to a common fund, which is then given as a lump sum to one member in each cycle. After having received the lump sum amount when it is his turn (i.e. 'borrow' from the group), he then pays back the amount in regular/further monthly contributions. Deciding who receives the lump sum is done by consensus, by lottery, by bidding or other agreed methods.
12. Define Small Business Model?
Ans: The prevailing vision of the 'informal sector' is one of survival, low productivity and very little value added. But this has been changing, as more and more importance is placed on small and medium enterprises (SMEs) for generating employment, for increasing income and providing services which are lacking. Policies have generally focussed on direct interventions in the form of supporting systems such as training, technical advice, management principles etc.; and indirect interventions in the form of an enabling policy and market environment. A key component that is always incorporated as a sort of common denominator has been finance, specifically microcredit in different forms and for different uses. Microcredit has been provided to SMEs directly, or as a part of a larger enterprise development programme, along with other inputs. 13. Define Village Banking Model?
Ans: Village banks are community-based credit and savings associations. They typically consist of 25 to 50 low-income individuals who are seeking to improve their lives through self-employment activities. Initial loan capital for the village bank may come from an external source, but the members themselves run the bank: they choose their members, elect their own officers, establish their own by-laws, distribute loans to individuals, collect payments and savings. Their loans are backed, not by goods or property, but by moral collateral: the promise that the group stands behind each individual loan. The Village Banking model is closely related to the Community Banking and Group models. This model is widely adopted and implemented by FINCA.
14. Give two distinct features of SHGs? Ans: (i) Recognized by the government: SHGS are well
recognized and accepted by the government, SHGs can open bank accounts in the name of SHG. They can also receive government grants and funds for development activities. (ii) SHGs are social intermediaries: SHGS do not restrict their functions only to financial transactions. SHGs are often involved in many social activities. There are examples where SHGs have taken up social issues and fought against social evils like alcoholism, violence, against women, dowry, getting into village politics, and being elected as Sarpanch.
Dibrugarh University Microfinance Unit 2 Microfinance Institutions Notes 4th Sem
15. Mention the methods in delivering financial services by MFIS?
Ans : (i) Group Method: his is one of the most common methodologies for providing micro-finance. The group method primarily involves a group of individuals, which becomes the basic unit of operation for the MFIS. As we have discussed earlier, MFIs have to provide collateral-free loans, group methodologies help in creating social collateral (peer pressure) that can effectively substitute physical collateral. A group becomes a basic unit with which MFIs deal.
(ii) Individual method: MFIs are also increasingly providing loans to individuals. In the Individual lending method, MFIS provide loans to an individual based on his/her own personal creditworthiness.
Individual lending is more prevalent with clients who generally need bigger size loans and have the capacity to produce guarantee and generate enough comfort to the MFI.
16. Mention two features of Grammen Model ?
Ans:(i) The group meeting takes place every week, (ii) Interest rate is charged on a flat basis..
17. Give two advantage of group methodology? Ans: (i) Groups are trained to own joint responsibility for loans that are taken by individuals in the group. (ii) Groups ensure repayments from all individuals in that group and in case of a default.
18. Give two sources of funding for MFIS?
Ans : (i) Shareholders' Equity: Many financial institutions are owned by wealthy individuals and corporate institutions. They put together the initial or seed capital of the business to kick-start the operation. This initial capital is used to get the license, to acquire offices, hire key personnel and help to start the operation of the business.
(ii) Venture Capital: A venture capital is defined as a capital invested in a project in which there is a substantial element of risk, typically a new or expanding business. In other words, a venture capital is financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential. 19. Define Non-Financial Institutions? Ans: The non-financial services sector includes economic activities, such as computer services, real estate, research and development, legal services and accounting. A non-financial corporation is one that engages in the production of market goods and (non-financial)services. Examples include: Apple, Toyota, Nestle and so on. Financial Institutions, on the other hand, include banks such as HSBC.
Microfinance Long Question Answer
1. Explain the Goals of Microfinance Institutions?
Ans: 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:
(a) Transform into a financial institution that assists in the development of communities that are sustainable.
(b) Help in the provision of resources that offer support to the lower sections of the society.
(c) There is special focus on women in this regard, as they have emerged successful in setting up income generation enterprises.
(d) Evaluate the options available to help eradicate poverty at a faster rate.
(e) Mobilise self-employment opportunities for the underprivileged.
(1) Empowering rural people by training them in simple skills so that they are capable of setting up income generation businesses.
2. Explain the Key Benefits Microfinance Institutions?
Ans: The part that microfinance plays in economic development is noteworthy. Some of the key benefits of MFIS include the following:
(a) 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.
(b) 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.
(c) 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.
(d) 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.
(e) It helps in the generation of employment opportunities Microfinance institutions help create jobs in the impoverished communities.
(f) 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.
3. Explain the Groups Organised by Microfinance Institutions in India?
Ans: There are several types of groups organised by microfinance institutions for offering credit, insurance, and financial training to the rural population in India: (i) 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.
(ii) 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. 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.
(iii) 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-to-end development of the rural economy. However, in India, SHGs have been more successful as MFIs when compared to Grameen Banks.
(iv) 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. Explain the Difference between JLGS and SHGs?
Ans : (i) 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, (ii) 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, (iii) 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, (iv) 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, (v) 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, (vi) 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.
5.How are MFIS Funded?
Ans: Microfinance Institutions get funding from several sources, such as:
Member and customer deposits: This is applicable to MFIS that are organised as mutual funds, cooperatives, and microfinance banks offering savings products. Subsidies and grants - Grants are more prominent when the MFI is just being set up. Own capital: The microfinance institution's own finance/capital accounts for a part of the funding extended to borrowers. Loans from partner banks: This is the primary source of funding for an MFI.
Funding received from public investors: Bilateral or multilateral organisations offer funds to MFIS. This is a source of long-term funding for the MFI. Funding received from private investors: These funds are supplied directly to the MFI or through investment funds that specialise in microfinance. This is also a source of long-term funding for the MFI.
6. Explain the Challenges faced by Microfinance Institutions?
Ans: (i) Over-Indebtedness: The microfinance sector deals with marginalized sections of Indian society intending to improve their standard of living, and thus over-indebtedness poses a severe challenge to its growth. The growing trend of multiple borrowing by clients and inefficient risk management are the most significant factors that stress the microfinance industry in India. The microfinance sector gives loans without collateral, which increases the risk of bad debts. Fast-paced growth needs proper infrastructural planning, in which the Indian microfinance sector evidently lacks.
(ii) Higher Interest Rates in Comparison to Mainstream Banks: The financial success of MFIs is limited when compared to commercial banks in India. The centuries-old banking system has a strong foothold in Indian grounds and is slowly evolving to meet the needs of the times. Most Microfinance Institutions charge a very high rate of interest (12-30%) when compared to commercial banks (8-12%). The regulatory authority RBI issued guidelines to remove the upper limit of 26% interest on MFI loans. While many MFI sector players benefited from the RBI guideline update, the borrowers were left for the worse. A massive trend of farmer suicide in states like Andhra Pradesh and Maharasthra is the outcome of borrower indebtedness that resulted from the higher interest rates.
(iii) Widespread Dependence on Indian Banking System : Because most microfinance institutions function as registered Non Governmental Organizations (NGOs), they are dependent on financial institutions such as commercial banks for stabilized funding to carry out their own lending activities. Most of these commercial banks are private institutions charging a higher rate of interest. They also sanction loans for shorter periods. The massive dependence of Indian MFIs on banks makes them incompetent as a lending partner.
(iv) Inadequate Investment Validation : Investment valuation is a crucial capability for the healthy functioning of an MFI. The developing nature of the markets in which MFIs operate, the market activity is often limited. That is why it becomes difficult for MFI to gain access to market data for valuation purposes. Lack of consistent and reliable valuation procedures, MFI management teams, are unable to achieve the level of quality information that they need to be able to make investment decisions
(v) Lack of Enough Awareness of Financial Services in the Economy: A developing country in the making, India has a low literacy rate, which is still more moderate in its rural areas. A large chunk of the Indian population fails to understand the basic financial concepts. There is a severe lack of awareness of financial services provided by the microfinance industry among the masses. This lack of adequate knowledge is a significant factor that keeps the rural population from accessing MFIs for easy credit to meet their financial needs. It also contributes to widespread financial exclusion in the: country. The additional task of educating masses and establishing trust before they initiate loans also falls on the shoulders of MFIs. The severe lack of awareness about policies and products offered by MFIS make it difficult for these institutions to sustain in excessively. competitive environments that developing nations are home to.
(vi) Regulatory Issues: The Reserve Bank of India (RBI) is the premier regulatory body for the microfinance industry in India. However, RBI more or less caters to commercial and traditional banks more than it helps MFIS. Even the needs and the structure of microfinance institutions are entirely different from those of other conventional lending institutions. Some regulations seem to have benefitted the MFIS, but others left numerous issues unaddressed. In spite of sporadic and unprecedented regulatory changes, the Microfinance industry appears to have been struggling to sustain. While new regulations result in structural and operational changes, they also result in ambiguity in norms of conduct. The result is sub-optimal performance and failure in the development of new financial products and services. Conclusively, there is a need for a separate regulatory authority for the microfinance industry.
7. Explain the Keys to Success in the Microfinance Market?
Ans: Well, it comes down to four key factors:
(i) Focus on the unbanked segment: Although the origins of microfinance began in the low-income customer segment, this part of the market is still largely untapped. Tapping this large unbanked segment is proving to be a tremendous growth driver for MFIS.
(ii) Adopt new technologies: Lately, there have been a wide variety of technological advancements which have altered the contours of the Microfinance sector in a positive way. The most impactful of these advancements is the use of mobile banking, MIS, and other software to deliver MFI services. By adopting mobile applications and automatic text messaging systems to notify clients of payment dates, MFIs are able to lower cost and time investments by almost 50 percent.
(iii) Diversify products and services: Up until now, the offerings of microfinance institutions were limited to micro-credit to services, but companies who wish to remain competitive in the market are rapidly expanding their portfolios by joining up with pension, remittance, and insurance providers to cross-sell products. This allows MFIs to market themselves as a one-stop solution for financial needs and second, giving them the cutting edge over another vendor who may only offer one service. As is the case in any industry, the higher the demand and money to be made is, the more difficult it becomes to step out of the crowded pack as the go-to vendor for the streams of eager consumers. This is most certainly the case in the Global Microfinance Market. With careful strategizing and deployment of the above drivers however, we can almost guarantee that the profit rewards will offset this challenge by a longshot. 8. Define Trident Microfinance?
Ans: Trident Microfinance is a Non-Banking Financial Company (NBFC), which has been operating in Andhra Pradesh, Madhya Pradesh, and Uttar Pradesh since 2007. Trident utilizes a joint lending group operational model to serve 2,54,000 clients. As of the end of March 2011, the NBFC had Rs. 150 crore in outstanding loans. A representative from Trident reported that overall the institution believes that the Malegam Committee's recommendations are a positive addition to the microfinance sector. However, Trident has had to take certain steps to ensure the survival of the institution following the AP crisis and subsequent Committee recommendations, such as the laying off of staff and closing down MFI branches. As of the end of September 2010, Trident had 109 branches, which has since been reduced to 84. Currently, the institution is in the process of further reducing the number of branches to around 50. Branches were primarily eliminated from urban areas, particularly in Hyderabad. The representative from Trident Microfinance expressed concern over several of the RBI regulatory changes. The representative reported that the 26% interest rate cap was not encouraging and Trident's clients had rarely reported problems with the interest rate in the past. However, as of present, it appears unlikely that the interest rate cap will affect the institution. Trident Microfinance also believes that the 12% margin cap proposed by RBI is unreasonable, and it should be removed from the recommendations. In response to the new RBI rule that borrowers? indebtedness cannot exceed Rs. 50,000, Trident stated that it would be likely that borrowers could easily misstate details regarding their debt. However, the institution expressed faith that a microfinance credit bureau would be able to adequately address the problem of concealed indebtedness. While the Malegam Report has recommended that a common credit bureau be created, Trident reports that MFIs are reluctant to join.
9. Explain five models of Micro Finance Institutions?
Ans : (i) Associations Model: This is where the target community forms an 'association' through which various microfinance (and other) activities are initiated. Such activities may include savings. Associations or groups can be composed of youth, women; can form around political/religious/cultural issues; can create support structures for microenterprises and other work-based issues. In some countries, an 'association' can be a legal body that has certain advantages such as collection of fees, insurance, tax breaks and other protective measures. Distinction is made between associations, community groups, peoples organizations, etc. on one hand (which are mass, community based) and NGOs, etc. which are essentially external organizations.
(ii) Bank Guarantees Model: As the name suggests, a bank guarantee is used to obtain a loan from a commercial bank. This guarantee may be arranged externally (through a donor/donation, government agency etc.) or internally (using member savings). Loans obtained may be given directly to an individual, or they may be given to a self-formed group. Bank Guarantee is a form of capital guarantee scheme. Guaranteed funds may be used for various purposes, including loan recovery and insurance claims. Several international and UN organizations have been creating international guarantee funds that banks and NGOs can subscribe to, to onlend or start microcredit programmes.
(iii) Community Banking Model: Community Banking model essentially treats the whole community as one unit, and establishes semi-formal or formal institutions through which microfinance is dispensed. Such institutions are usually formed by extensive help from NGOs and other organizations, who also train the community members in various financial activities of the community bank. These institutions may have savings components and other income-generating projects included in their structure. In many cases, community banks are also part of larger community development programmes which use finance as an inducement for action.
(iv) Credit Unions Model: A credit union is a unique member driven, self-help financial institution. It is organized by and comprised of members of a particular group or organization, who agree to save their money together and to make loans to each other at reasonable rates of interest. The members are people of some common bond: working for the same employer; belonging to the same church, labor union, social fraternity, etc.; or living/working in the same community. A credit union's membership is open to all who belong to the group, regardless of race, religion, color or creed. A credit union is a democratic, not-for-profit financial cooperative. Each is owned and governed by its members, with members having a vote in the election of directors and committee representatives.
Rabindranath Tagore University, Hojai Microfinance Unit 2 Microfinance Institutions Notes 4th Sem
(v) Group Model: The Group Model's basic philosophy lies in the fact that shortcomings and weaknesses at the individual level are overcome by the collective responsibility and security afforded by the formation of a group of such individuals. The collective coming together of individual members is used for a number of purposes: educating and awareness building, collective bargaining power, peer pressure etc. The Group model is closely related to, and has inspired, many other lending models. These include Grameen, community banking, village banking, self-help, solidarity, peer pressure etc.
10. Explain the Documents Required for a Microfinance Loan?
Ans: Although the documentation required for getting a microfinance loan varies between lenders, the following are the documents that are usually needed:
Updated application form
PAN card, copy of Passport, ration card .
Proof of office address
Passport-size photos of the applicants and co-applicants
Certified copies of AOA/MOA/Partnership deed
Track record of repayment
Audited financials of the previous 2 years
ITR of partners/directors for the previous 2 years
Bank account statements for the past 6 months .
Proforma invoice to the equipment that is to be financed.
For lawyers, CAS, architects, and doctors - Professional qualification certificates.
11. Explain the Lenders Offering Microfinance Loans to MFIS?
Ans : (i) Reliance Money: Reliance Money offers microfinance solutions at great interest rates by partnering with microfinance institutions (MFIS). The documentation required for this is limited. Wholesale funding is provided to MFIs for on-lending. The lender also helps with guarantees so that MFIS are able to get loans from alternative sources.
(ii) ICICI Bank ICICI Bank has been partnering with MFIS for at least 10 years to provide microfinance loans to these institutions. Currently the bank is focussing on the following:
Setting up a profitable and healthy lending business with select MFIS Investing that enables the healthy growth of the microfinance industry in India. The financing offered by ICICI Bank to MFIS are predominantly term loans. The bank also provides Pass Through Certificates. Other value-added facilities such as cash management services, salary/savings accounts, and customised current accounts are offered to MFIS for treasury and staff products.
(iii) State Bank of India (SBI): SBI offers loans to microfinance institutions and NGOs that act as intermediaries for financing the needs of eligible entrepreneurs in the lower segment of the society. These term loans can be repaid every month, quarter, or at intervals of 6 months. The total repayment period cannot be more than 3 years and cash credit loans should be renewed on an annual basis.
(iv) Axis Bank Axis Bank offers loans to microfinance institutions that financially empower low-income earners and micro entrepreneurs. The bank has partnered with several MFIs across the country. Term loans are offered by the bank to MFIs that extend this to the eligible borrowers. (v) DCB Bank: DCB Bank offers two types of products as part of microfinancing. These are term loans and loans to MFIs for on-lending purposes.
12. Explain the Role of Microfinance Institutions (MFIs)?
Ans: Microfinance services are offered by the following sources: (1) Formal institutions, ie., cooperatives and rural banks, (ii) Semiformal institutions, i.e., non-government organisations, (iii) Informal sources, such as shopkeepers and small-scale lenders Institutional microfinance encompasses the services provided by both formal and semiformal institutions. A microfinance institution specialises in banking services for low-income individuals and groups. These institutions access financial resources from mainstream financial entities and provide support service to the poor. Microfinance institutions are hence, emerging as one of the most effective tools in reducing poverty in India. While several MFIs are well-run with great historical records, others are operationally self-sufficient. The different types of institutions offering microfinance in India are: (i) Commercial banks, (ii) Credit unions, (iii) Non-governmental organisations (NGOs), (iv) Sectors of government banks, (v) Cooperatives. Microfinance institutions act as a supplement to the services offered by banks. Apart from offering micro credit, financial services such as insurance. savings, and remittance are provided, Non-financial services such as training, counselling, and supporting borrowers are offered in the most convenient manner as well.
Points to note:
- The borrower gets the above-mentioned services at their convenience
- The repayment schedule is also decided by the borrower Interest rates charged by MFIs are usually higher than that of traditional banks
- Interest rates vary widely based on the loan purpose and borrower history.
Gauhati University BCom 4th Microfinance Notes 2024
Bcom 4th Sem(Honours) GU All Subject Previous Year Question Paper "Click Here"