Presented by:

Adnan Khan (01)

Swati Ahuja (20)
CONTENTS
CONCEPT OF !C"OF!NANCE
NEE# FO" !C"OF!NANCE
#O AC"OECONO!C CON#!T!ONS AFFECT F!s$
!P%EENTAT!ON !N !N#!A
F!NANC!A% !NC%&S!ON
#O!NANT O#E%S !N !N#!A
SCA%E AN# SP"EA#
!PACT

C'n(e)t '* !C"OF!NANCE
i(r'*inan(e se(t'r has +r'wn ra)id,y '-er the )ast *ew de(ades. N'be,
%aureate uha//ad 0unus is (redited with ,ayin+ the *'undati'n '* the
/'dern F!s with estab,ish/ent '* 1ra/een 2an3 in 2an+,adesh in 1456.
Microfinance is the )r'-isi'n '* *inan(ia, ser-i(es t' ,'w7in('/e (,ients 'r
s',idarity ,endin+ +r'u)s in(,udin+ ('nsu/ers and the se,*7e/),'yed8 wh'
traditi'na,,y ,a(3 a((ess t' ban3in+ and re,ated ser-i(es.9
Microfinance is not just about giving micro credit to the poor rather it is an
economic development tool whose objective is to assist poor to work their
way out of poverty. !t ('-ers a wide ran+e '* ser-i(es ,i3e (redit8 sa-in+s8
insuran(e8 re/ittan(e and a,s' n'n7*inan(ia, ser-i(es ,i3e trainin+8
('unse,in+ et(. The basi( )rin(i),es '* /i(r' *inan(e that distin+uish it *r'/
the ear,ier /'des '* (redit de,i-ery are s/a,, a/'unts '* ,'an8 ,a(3 '*
)hysi(a, (',,atera, but e/)hasis 'n s'(ia, (',,atera, 'r )eer /'nit'rin+.
Sa,ient *eatures '* i(r'*inan(e:
2'rr'wers are *r'/ the ,'w in('/e +r'u)
%'ans are '* s/a,, a/'unt : /i(r' ,'ans
Sh'rt durati'n ,'ans
%'ans are '**ered with'ut (',,atera,s
;i+h *re<uen(y '* re)ay/ent
%'ans are +enera,,y ta3en *'r in('/e +enerati'n )ur)'se
Need *'r /i(r'*inan(e:
The nati'n has been e=)eri/entin+ with -ari'us a,ternati-es t' rea(h the
ban3in+ ser-i(es8 )ri/ari,y (redit8 in rura, areas thr'u+h se-era, initiati-es.
1i-en the s'(ia, res)'nsibi,ity t' rea(h the rura, areas and the )''r8 the
ban3s and ('7')erati-e instituti'ns with +uidan(e *r'/ the "eser-e 2an3 '*
!ndia ("2!)8 the Nati'na, 2an3 *'r A+ri(u,ture and "ura, #e-e,')/ent
(NA2A"#) and 'ther a)e= ,e-e, instituti'ns /ade seri'us e**'rts in /eetin+
the needs and de/ands '* the rura, se(t'r.
;'we-er8 there ('ntinues t' be wide +a)s in the a-ai,abi,ity '* ban3in+
ser-i(es in the rura, areas. There are sti,, areas whi(h are unban3ed and a
,ar+e nu/ber '* )e'),e whi(h are yet t' +et a((ess t' *inan(ia, ser-i(es. It
is important to understand both the supply and the demand side
perspectives that lead to such a wide gap in availability of financial
services.
The e=(,usi'n '* ,ar+e nu/bers '* the rura, )')u,ati'n *r'/ the *'r/a,
ban3in+ se(t'r /ay be *'r se-era, reas'ns *r'/ the su)),y side8 su(h as:
a) )ers'ns are unban3ab,e in the e-a,uati'n>)er(e)ti'n '* ban3ers8
b) The ,'an a/'unt is t'' s/a,, t' in-ite attenti'n '* the ban3ers8
() distan(es are t'' ,'n+ *'r ser-i(in+ and su))'rtin+ the a(('unts
d) hi+h transa(ti'n ('sts
e) ,a(3 '* (',,atera, se(urity8
*) ,a(3 '* ban3in+ habits and (redit (u,ture
Fr'/ the de/and side8 there are se-era, reas'ns *'r the rura, )''r
re/ainin+ e=(,uded *r'/ the *'r/a, ban3in+ se(t'r8 su(h as :
a) ,a(3 '* awareness8
b) hass,es re,ated t' d'(u/entati'n and )r'(edures in the *'r/a,
syste/8
() easy a-ai,abi,ity '* ti/e,y and d''rste) ser-i(es *r'/ /'ney
,enders>in*'r/a, s'ur(es and
d) )ri'r e=)erien(e '* reje(ti'n by>indi**eren(e '* the *'r/a, ban3in+
syste/.
1i-en the wide +a) as it e=ists n'w8 the *'(us has t' be 'n *urther
a((e,erati'n '* e**i(ient and e**e(ti-e de,i-ery '* (redit t' the rura, *ar/ and
n'n7*ar/ se(t'rs. !t is a,s' n'w wide,y re('+ni?ed that with in(rease in
awareness and bui,d7u) '* e<uity in the *'r/ '* sa-in+s and (redit hist'ry8
the )''r w'u,d need (redit in an in(reasin+ <uantu/ de)endin+ 'n their
sta+es '* de-e,')/ent. Kee)in+ in -iew the ne(essity '* se(ured sa-in+s
*'r *uture use8 need *'r reas'nab,e return8 as a s'ur(e '* ,'n+7ter/ se(urity
'* the h'useh',ds and /eans *'r in(,usi'n in the /ainstrea/ '* the
*inan(ia, se(t'r8 easier and wider a-ai,abi,ity '* sa-in+s )r'du(ts has
be('/e i/)erati-e. Pr'te(ti'n a+ainst -u,nerabi,ities '* rura, )''r t'
disease8 death8 ',d a+e8 disasters and natura, (a,a/ities thr'u+h /i(r'
insuran(e and )ensi'n s(he/es is a,s' ('nsidered essentia, as s'(ia,
se(urity /easure. Thus8 there is need *'r ('/)rehensi-e *inan(ia, ser-i(es
en('/)assin+ sa-in+s8 (redit8 re/ittan(e8 insuran(e and )ensi'n )r'du(ts
whi(h the *'r/a, *inan(ia, syste/ has n't been ab,e t' )r'-ide e**e(ti-e,y in
the rura, areas.
Thus t' *i,, this +a) !C"OF!NANCE (an ),ay a -ery i/)'rtant r',e.
#' the /a(r'e('n'/i( ('nditi'ns in a ('untry ha-e
any bearin+ 'n the w'r3in+ and ')erati'ns '* F!$
@e,, the answer t' this <uesti'n is yes. any i/)a(t studies ha-e
/enti'ned the i/)'rtant enab,in+ r',e that stab,e /a(r'e('n'/i(
('nditi'ns ),ay in the de-e,')/ent '* this se(t'r. A study in 2ra?i, ,in3s the
re,ati-e under)er*'r/an(e '* /i(r'*inan(e in the ('untry t' hi+h ,e-e,s '*
in*,ati'n. An'ther si/i,ar study atte/)ts t' ('/)are the +r'wth '* F!s in
!ndia and Ne)a,8 and ('/es t' the ('n(,usi'n that the re,ati-e su((ess '*
F!s in !ndia (an be re,ated t' the )'siti-e /a(r'e('n'/i( ('nditi'ns
whereas the ,a(3 '* +r'wth '* F!s in Ne)a, was due t' )',iti(a, instabi,ity
*',,'win+ the a'ist insur+en(y in 1446.
!/),e/entati'n in !ndia..
!n se-era, ('untries a(r'ss the w'r,d8 /i(r' *inan(e 'ri+inated *r'/ the
a(ti-ity '* N'n71'-ern/enta, Or+anisati'ns (N1Os) that were aided
,ar+e,y 'r )art,y by *'rei+n d'n'rs *'r their ,endin+ ')erati'ns.
A+ainst this ba(3+r'und8 the !ndian e=)eri/ent with /i(r' *inan(e was
di**erent in /ain,y tw' res)e(ts.
1) First8 !ndia in-',-ed its )ub,i( ban3s netw'r3 t' )r'-ide /i(r' *inan(e.
2) Se('nd,y8 thri*t *irst and n't (redit *irst was ('nsidered t' be the basis
*'r /i(r' *inan(e in !ndia.
i(r' Finan(e and Finan(ia, !n(,usi'n:
Finan(ia, in(,usi'n has been de*ined as the A)r'-isi'n '* a**'rdab,e
*inan(ia, ser-i(es9 ("2!8 2006a) t' th'se wh' ha-e been ,e*t unattended 'r
under7attended by *'r/a, a+en(ies '* the *inan(ia, syste/. These *inan(ia,
ser-i(es in(,ude A)ay/ents and re/ittan(e *a(i,ities8 sa-in+s8 ,'an and
insuran(e ser-i(es.9 i(r' *inan(e has been ,''3ed u)'n as an i/)'rtant
/eans '* *inan(ia, in(,usi'n in !ndia ("2!8 2006b). ;'we-er8 +'in+ a ste)
*urther8 we (an say that /i(r' *inan(e has t' a(t )r'a(ti-e,y n't just as a
/eans '* *inan(ia, in(,usi'n and a,s' has t' w'r3 t'wards redu(in+
de)enden(e '* )''r b'rr'wers 'n -ari'us in*'r/a, s'ur(es '* (redit that
are '*ten n't'ri'us *'r the 'ner'us ter/s at whi(h they '**er (redit. An
e**e(ti-e *inan(ia, in(,usi'n is )'ssib,e 'n,y with the a(('/),ish/ent '* the
se('nd.
#'/inant 'de,s '* i(r'*inan(e in !ndia
S;172an3 %in3a+e 'de,: This /'de, in-',-es Se,* ;e,) 1r'u)s (S;1s)
whi(h are *inan(ed dire(t,y by the C'//er(ia, 2an3s (Pub,i( Se(t'r and
Pri-ate Se(t'r)8 "e+i'na, "ura, 2an3s (""2s) 'r C'7')erati-e 2an3s.
i(r'*inan(e )r'+ra//es *'(us 'n 'r+anisati'n at the +rassr''ts ,e-e,
thr'u+h a )r'(ess '* s'(ia, /'bi,isati'n that enab,es the )''r t' bui,d Se,*
;e,) 1r'u)s (S;1s) a/'n+st the/se,-es8 ('nsistin+ '* 10720 )ers'ns.
They )arti(i)ate *u,,y and dire(t,y and ta3e de(isi'ns inde)endent,y in su(h
'r+anisati'ns.
These +r'u)s are *'r/ed8 de-e,')ed and stren+thened t' e-',-e int' se,*7
/ana+ed )e'),eBs 'r+anisati'ns whi(h )r'-ide interna, ,'ans t' its
/e/bers *r'/ the +r'u) ('r)us. The +r'u) ('r)us is su)),e/ented with
"e-',-in+ Fund san(ti'ned as (ash (redit ,i/it by the ban3s.
F!72an3 %in3a+e 'de,: This /'de, ('-ers *inan(in+ '* i(r'*inan(e
!nstituti'ns (F!s) by ban3in+ a+en(ies *'r 'n7,endin+ t' S;1s and 'ther
s/a,, b'rr'wers ('-ered under /i(r'*inan(e se(t'r.
F!s ('/bine *,e=ibi,ity8 sensiti-ity and res)'nsi-eness '* the in*'r/a,
(redit syste/ with te(hni(a, C ad/inistrati-e (a)abi,ities and *inan(ia,
res'ur(es '* the *'r/a, *inan(ia, se(t'r whi(h re,y hea-i,y 'n (',,e(ti-e
stren+th and (,'seness '* s'(ia, +r'u)s *'r e**e(ti-e s'(ia, /'bi,isati'n t'
enab,e *inan(ia, e/)'wer/ent.
SCA%E AN# SP"EA# OF !C"O F!NANCE:
!ndian /i(r'*inan(e has been sh'win+ /i,d si+ns '* re('-ery 'n a(('unt
'* i/)r'-in+ re+u,at'ry en-ir'n/ent and i/)r'-e/ent in +'-ernan(e. The
nu/ber '* sa-in+s ,in3ed S;1s in(reased t' ab'ut 5.46 /i,,i'n with the
/e/ber base '* 10D /i,,i'n. The )r'-isi'na, data a-ai,ab,e *r'/ NA2A"#
*'r the year 2011:12 sh'ws that the t'ta, (,ient 'utrea(h '* F!s was
re('rded at 26.E /i,,i'n with a +r'ss ,'an )'rt*',i' '* "s 204.1F bi,,i'n. 2'th
the (,ients 'utrea(h and ,'an )'rt*',i' re('rded ne+ati-e +r'wth in this
year. The +r'wth rate in (,ient 'utrea(h (a/e d'wn by 1G.5 )er (ent in the
year 2011:12 as a+ainst an in(rease '* 14.1 )er (ent re('rded in the
)re-i'us year. ;'we-er8 the +r'ss ,'an )'rt*',i' has re/ained a,/'st
sta+nant8 re+isterin+ a /ar+ina, *a,, '* F )er (ent. Cust'/er 'utrea(h has
re('rded a re,ati-e,y hi+her de(e,erati'n in +r'wth rate as ('/)ared t' the
,'an 'utstandin+8 whi(h su++ests that F!s are unab,e t' ser-i(e e=istin+
(ust'/ers and )erha)s n't a(<uirin+ new (ust'/ers. This trend ('u,d be
attributed t' the ,i<uidity (risis whi(h a**e(ted the F!s durin+ the se('nd
ha,* '* the year 2010:118 but re/ained a,/'st un(han+ed *'r the entire
year 2011:12. 2'th S2%P and F!s )ut t'+ether a(hie-e 'utrea(h '* EF.D
/i,,i'n (,ients durin+ 2011:128 whi(h is ,ess by 11.6 )er (ent '* their
(ust'/er base in the )re-i'us year (Fi+ure 1.1). The de+ree '*
de(e,erati'n was )r'n'un(ed /'re a/'n+ F!s (:1G.5 )er(ent) than
S2%P (:4.G )er (ent) (Tab,e 1.1).
Outstandin+ S;1 ,'ans *r'/ ban3s sh'wed an in(rease '* ab'ut 14
)er(ent8 whereas the F!s )er*'r/an(e ,'ans de(reased F )er(ent when
('/)ared t' the )re-i'us year. O-era,,8 the ,'ans 'utstandin+ in the /i(r'
*inan(e se(t'r in(reased by ab'ut 4.5 )er(ent (Fi+ure 1.2). !n ter/s '*
abs',ute a/'unts8 the in(rease was '* the 'rder '* "s G1 bi,,i'n. The
a-era+e ,'an si?e '* S;1s in(reased t' "s 68D20 re)resentin+ an in(rease
'* "s18G25 *r'/ the )re-i'us year (Tab,e 1.2). !n the (ase '* F!s8 the
a-era+e ,'ans )er (ust'/er in(reased t' "s58E0F re+isterin+ 1G )er (ent
/'re than the )re-i'us year with in(rease '* "s1802D. This in(rease in
a-era+e ,'an si?e is ,i3e,y t' )r'-e t' be bene*i(ia, t' F!s in the (urrent
('nte=t '* /ar+in and interest (a)s that are ),a(ed. #urin+ the (urrent
year8 the a-era+e ,'an si?e w'u,d ('ntinue t' in(rease in an e**'rt t'
redu(e ')eratin+ ('sts and /ana+e the /ar+in. 2r'ad,y8 the t'ta, nu/ber
'* /i(r'*inan(e se(t'r (,ients st''d at 16E.6 /i,,i'n as at the end '* ar(h
2011 (Tab,e 1.F).
!PACT OF !C"OF!NANCE:
A(('rdin+ t' re(ent "2! esti/ates8 there are '-er DG0 /i,,i'n Aunban3ed
)e'),e9 in !ndia8 /'st '* wh'/ ,i-e in rura, areas. The ('n(e)t '*
i(r'*inan(e has )r'-en t' be an e**e(ti-e and )'wer*u, t'', *'r rura,
de-e,')/ent and )'-erty redu(ti'n. %i3e /any 'ther de-e,')/ent t'',s8 it
has su**i(ient,y )enetrated the )''rer strata '* s'(iety.
1. Poverty reduction tool
i(r'*inan(e (an be a (riti(a, e,e/ent '* an e**e(ti-e )'-erty redu(ti'n
strate+y. i(r'*inan(e8 by )r'-idin+ s/a,, ,'ans and sa-in+s *a(i,ities t'
th'se wh' are e=(,uded *r'/ ('//er(ia, *inan(ia, ser-i(es has been
de-e,')ed as a 3ey strate+y *'r redu(in+ )'-erty n't 'n,y in !ndia but in
-ari'us ('untries thr'u+h'ut the w'r,d.
2. Women Empowerment
!n rura, areas w'/en ,i-in+ be,'w the )'-erty ,ine are unab,e t' rea,i?e
their )'tentia,. i(r'*inan(e )r'+ra//es are (urrent,y bein+ )r'/'ted as a
3ey strate+y *'r si/u,tane'us,y addressin+ b'th )'-erty a,,e-iati'n and
w'/enHs e/)'wer/ent. Se-era, )r'+ra//es were i/),e/ented by
-ari'us +'-ern/ents and n'n+'-ern/enta, 'r+ani?ati'ns t' u),i*t the/
b'th e('n'/i(a,,y and s'(ia,,y.
. !evelopment of t"e overall financial #y#tem
@ith'ut )er/anent a((ess t' instituti'na, /i(r'*inan(e8 /'st )''r
h'useh',ds ('ntinue t' re,y 'n /ea+er se,*7*inan(e 'r in*'r/a, s'ur(es '*
/i(r'*inan(e8 whi(h ,i/its their abi,ity t' a(ti-e,y )arti(i)ate in and bene*it
*r'/ the de-e,')/ent '))'rtunities .The de)enden(e '* the rura, )')u,a(e
'n the in*'r/a, /'ney ,endin+ se(t'r *r'/ 6E.F )er(ent in 1451 t' F6
)er(ent in 1441. (A,, !ndia #ebt and !n-est/ent Sur-ey8 1441).
$. Self Employment
P'-erty redu(ti'n thr'u+h se,* e/),'y/ent has ,'n+ been a hi+h )ri'rity *'r
the 1'-ern/ent '* !ndia. i(r'*inan(e is an e=)eri/enta, t'', in its '-era,,
strate+ies. 'st '* )''r )e'),e /ana+e t' ')ti/i?e res'ur(es '-er a ti/e
t' de-e,') their enter)rises. There*'re *unda/enta, a))r'a(h is t' (reate
the se,* e/),'y/ent by *inan(in+ the rura, )''r thr'u+h *inan(ia,
instituti'ns. i(r'*inan(e8 thus8 (reates the h')e and in(reases the se,*7
estee/ '* the )''r by +i-in+ the '))'rtunities t' be e/),'yed.
2!2%!O1"AP;0
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