MICRO FINANCING PROGRAMS Ausaf Ahmad Workshop on Empowerment of Muslim NGOs Jamia Hamdard Convention Center March

AN IRONY It is estimated that it would require US $21 billions to provide micro finance to worlds poorest 100 million families. Ironically, only if worlds seven richest family got together, they could wipe out global poverty from their combined wealth. Alas, the world does not go by Charity alone.

MAJOR CONCERNS Why Micro Financing? What is Micro Financing? Some Major Experiments Micro Financing in India Interest Free Micro Financing Cooperatives and Micro Financing

WHY MICRO FINANCING? Financial intermediation between savers and investors. Mismatch between the preferences of savers and investors. Problems of Moral Hazards Problems of Adverse Selection Solutions: Specialized agencies Micro Financing Micro Financing

WHAT IS MICRO FINANCING? Micro financing is a term used for providing financial services such as micro credit, micro saving and micro insurance to Poor people. Credit worthiness, Profitability and Bankable projects? [ Poor people do not have collaterals]. Poor people could be relied to repay the loans Market mechanism could be used productively to improve the economic conditions of the poor.

A SHORT HISTORY 1864 Wilhelm Raiffeisens German Village Experiment, Rural financing Alphonse Desjardin, Quebec experiment Mitghamr project 1970s Grameen Bank, Bangladesh International Institutions, NGOs, Multinational Banks.

GRAMEEN BANK Owned by the poor borrowers Esablished in 1976 in Jobra, Bangladesh Incorporated in 1983 by Special law No collateral, No Legal instruments, No group or joint Liability. Responsibility of repayment with the individual borrower. 97% women borrowers.

GRAMEEN BANK branches, works in 75,000 villages, Total staff over 21,000 Total loans disbursement TK 310 billion. Repaid TK 277 billion, 33 billion outstanding. Recovery Rate 98.5 per cent. 100 percent loans financed from own deposits. Group of Five. All are denied credit if one defaults.

GRAMEEN BANK Interest Rates: Fixed for Micro credit programs 11% Income generating loans 20% Housing loans 8% Student loans5% Struggling Members Zero % Deposit rates 8.5 – 12% Deposit rates 8.5 – 12%

GRAMEEN BANK Housing loans, Micro enterprises loans, scholarships, Higher education loans, 17 companies in Grameen Network e.g. Grameen Phone, Telecom, communication, Cybernet, Software, IT Park, Information Highways, Udog, Knitwear, Textiles, Shiksha, Bayopar Vikas, Grameen Trust etc.

CRITIQUE OF GRAMEEN MODEL Usurious : high interest rates Exploitative Benefits large corporation

NEEDS FOR MICRO FINANCE IN INDIA With branches of commercial banks, branches of regional rural banks and 100,000 branches of cooperative banks, banking is out of reach for millions. 75 million household depend on money lenders. 90 percent in Rural India have no access to institutional credit. Micro credit can change lives.

MICRO CREDIT IN INDIA NABARD [NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT] INDIA TOGETHER ARCOD [ASSOCIATION FOR RURAL COMMUNITY ON DEVELOPMENT] VMCS [VILLAGE MICRO CREDIT SERVICES]

COOPERATIVE CREDIT SOCIETIES Democratic Participation and control Open membership Cooperative Education Cooperative Cooperation

ADVANTAGES OF COOPERATIVES Insulation from competition from the corporate sector. Less regulated, More Incentives More elastic with respect to size. More emendable to different purposes. Decentralization

BENEFITS OF MICRO CREDIT Working through Self Help Groups. NABARD STUDY: Value of assets increased by 72% Value of assets increased by 72% Average annual saving increased from Rs. 450 to Rs Average borrowing increased from Rs,4000 to Rs. 8,000, with 70% loans for income generating activities Increase in Household income 33%

PRE REQUISITES OF SUCCESS TRANSPARENCYACCOUNTABILITYPROFESSIONALISM

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