A REPORT ON
Microfinance in India with special reference to Canara Bank
BY
SWATI BHARDWAJ
ITM2009-11/53
ITM BANGALORE
A Dissertation Submitted to
Institute for Technology and Management, Bangalore
By
SWATI BHARDWAJ
Reg. No: PGDM 2009-11/53
2009-11
DECLARATION
I hereby declare that this project entitled study on ‘Microfinance in India-with special
reference to Canara Bank’ conducted at Canara Bank Head Office Bangalore, is a record of
independent work carried out by me during the academic year 2009-11 under the guidance of my
faculty guide Prof. Madhavi Jayanthi of ITM Bangalore and my company guide Mr. B. S.
Umesh Rao, Senior Manager-Microfinance Division and Mr. Ashwani Kumar, Manager, Agri-
Business, Marketing unit, Priority Credit Wing, Canara Bank H.O., Bangalore.
I also declare that this project is the result of my effort and
has not been submitted to any other university or institution for the award of any degree or
personal favor whatsoever. All the details and analysis provided in the report hold true to the best
of my knowledge.
SWATI BHARDWAJ
Place: Bangalore
Date:
ACKNOWLEDGEMENT
Working on this project has been a great learning experience for me. I would like to take this
opportunity to express my gratitude to the people who have helped me to bring out this project.
I take this opportunity to express my profound gratitude and deep regards to my guide Mr. B. S.
Umesh Rao, Senior Manager-Microfinance Division, Canara Bank H.O., Bangalore for his
guidance, monitoring and constant encouragement throughout the course of this project.
I would also like to thank Prof.Latha Ramesh and Prof Madhavi
Jayanthi for his guidance and support.I am also grateful to Mr. Ashwani Kumar, Manager,
Agri-Business, Marketing unit, Priority Credit Wing, Canara Bank H.O. who gave me the
opportunity to do this project. His timely guidance, valuable knowledge and experience helped a
lot.
SWATI BHARDWAJ
Management Trainee
ITM, Bangalore
1
INDEX
Chapter Particulars Page No
1 Statement of Problem 06
2 Objectives of the Study 06
3 Methodology 06
4 Limitations of the Study 06
Part A
Chapter Particulars Page No
1 Industry Profile 8-9
2 Company Profile 10-24
2.1 Background of the Company 10-11
2.2 Nature of the Business carried 12
2.3 Vision, Mission and Quality Policy 12
2.4 Products/ Services Profile 13-17
2.5 Area of Operation 18
2.6 Ownership Pattern 18-20
2.7 Competitors Information 21
2.8 Infrastructural Facilities 22
2.9 Work Flow Model 22
2.10 Achievement/ Award 23-24
2.11 Future Growth and Prospect 24
3 McKinsey’s 7S Frame Work 25-28
4 SWOT Analysis 29-30
5 Analysis of Financial Statement 31-33
Part B
Chapter Particulars Page No
1 Executive summary 35
2 Microfinance Introduction 36
3 Microfinance definitions 37-38
4 Activities/Products/Services in microfinance 39
5 History/Origin of Microfinance 40
6 Demand for Microfinance services 41-43
7 Supply for Microfinance services 44
8 Legal and Regulatory Framework 45-47
9 Major players 48
2
10 Growth of Microfinance 49-51
11 Microfinance delivery methodologies 52-54
12 Present situation 55-60
13 Success factors of Microfinance in India 61-63
14 Indian Microfinance at Global context 64
15 Impact of Microfinance 65
16 Issues of Microfinance 66-68
17 Microfinance at Canara Bank 69-82
18 Future of Microfinance 83-84
19 Conclusion 85
20 Suggestion 86
21 Learning experience 87
22 Bibliography 88-89
23 Abbreviations 90
LIST OF TABLES
Table Particulars Page no.
no.
1 Product and services of Canara Bank 13
2 Personal Banking 14-15
3 Corporate Banking 15
4 NRI Services 16
5 Priority credit finance 17
6 Ownership Pattern of Canara Bank 19
7 Financial Statement Analysis 31
8 Growth of Microfinance 49
9 Classification of MFIs in India 50
10 Characteristics of Microfinance delivery models in India 51
11 Growth in Indian Microfinance Sector 56
12 Biggest MFIs in India 58
13 SHG-Bank linkage model 59
14 MFIs Bank Linkage model 60
15 Coverage of Women SHGs 60
16 Comparative analysis of Micro financial services offers to the poor 63
17 Coverage under DIR scheme 74
18 Coverage under Debt Swapping Scheme 75
19 Coverage under Krishi Mitra Card 78
20 Coverage under SHG Credit linkage 79
3
21 Performance of Group 80
22 Coverage under JLG/TFG 82
4
1) STATEMENT OF THE PROBLEM
“The study of Microfinance in India with special reference to Canara Bank”.
India is one of the highly populated countries in the world currently. Reason being unawareness,
illiteracy, avoidance or disinterest; in turn leading to economic downfall and almost 30-35% of
the people are under the Below Poverty Line (BPL). These people are not even able to meet their
consumption need. Therefore there is a need of a tool that not only serves them but also make
them self capable, Microfinance is such an approach that would result in the better standard of
living for them.
2) OBJECTIVE OF THE STUDY
The objective of this study is to get an overview of Microfinance Industry in India, finding out
the need of microfinance by poor, different types of micro financial products available to the
poor their supply and demand and to know the initiatives taken by Canara Bank for meeting the
financial need of poor as well as to find out where they are lagging in fulfilling their need and
how to overcome this.
3) METHODOLOGY
Secondary data collection: The study is purely theoretical; no primary data collection was
required for the project. All the data collected for the study was based on different sources, like
company reports, websites, details provided by the guide, case studies related to financial
inclusion, RBI guidelines, Canara bank reports and initiatives etc
6
1) INDUSTRY PROFILE
7
institutions that include cooperatives, rural banks, etc. form a part of the nationalized banks
category.
The Indian banking system is financially stable and resilient to the shocks that may arise due to
higher non-performing assets (NPAs) and the global economic crisis, according to a stress test
done by the Reserve Bank of India (RBI). Significantly, the RBI has the tenth largest gold
reserves in the world after spending US$ 6.7 billion for the purchase of 200 metric tonnes of gold
from the International Monetary Fund (IMF). The purchase has increased RBI’s share of gold
holdings from approximately 4% to 6%. In the annual international ranking conducted by UK-
based Brand Finance Plc, 20 Indian banks have been included in the Brand Finance® Global
Banking 500. The State Bank of India has become the first Indian bank to be ranked among the
Top 50 banks in the world, capturing the 36th rank, as per the Brand Finance study. The brand
value of SBI increased from US$ 1.5 billion in 2009 to US$ 4.6 billion in 2010. ICICI Bank also
made it to the Top 100 list with a brand value of US$ 2.2 billion. The total brand value of the 20
Indian banks featured in the list stood at US$ 13 billion.
Following the recent financial crisis, new deposits have gravitated towards the public sector
banks. According to RBI's 'Quarterly Statistics on Deposits and Credits of Scheduled
Commercial Banks: December 2009', nationalized banks, as a group, accounted for 50.9% of the
aggregate deposits, while State Bank of India and its associates accounted for 23.4%. The share
of other scheduled commercial banks, foreign banks and regional rural banks in aggregate
deposits were 17.1%, 5.5% and 3% respectively. With respect to gross bank credit, nationalized
banks hold the highest share of 50.6% in the total bank credit, with SBI and its associates at
23.8% and other scheduled commercial banks at 17.8%. Foreign banks and regional rural banks
had a share of 5.3% and 2.5% respectively in the total bank credit.
The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again. NRI
deposits have increased by nearly US$ 47.8 billion on March 2010, as per the RBI’s June 2010
bulletin. Most of this has come through Foreign Currency Non-resident (FCNR) accounts and
Non-resident External Rupee Accounts. Foreign exchange reserves were up by US$ 1.69 billion
to US$ 272.8 trillion, for the week ending June 11, on account of revaluation gains. June 21,
2010.
8
2) COMPANY PROFILE
Canara Bank: “A good bank is not only the financial heart of the community, but also one
with an obligation of helping in every possible manner to improve the economic conditions of
the common people”
9
Articulation of ‘Good Banking’ – Bank’s Citizen Charter
Commissioning of Exclusive Mahila Banking Branch
Launching of Exclusive Subsidiary for IT Consultancy
Issuing credit card for farmers
Providing Agricultural Consultancy Services
Over the years, the Bank has been scaling up its market position to emerge as a major 'Financial
Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint ventures in India
and abroad.
Canfin Homes Limited
Canbank Factors Limited
Canbank Venture Capital Fund Limited
Canbank Computer Services Limited
Gilt Securities Trading Limited
Canara Robeco Asset Management Company Limited
Canbank Financial Services Limited
Canara HSBC Oriental Life Insurance Company Limited
As at March 2010, the Bank has further expanded its domestic presence, with 3043 branches
spread across all geographical segments. Keeping customer convenience at the forefront, the
Bank provides a wide array of alternative delivery channels that include over 2000 ATMs- one
of the highest among nationalized banks- covering 728 centers, 1959 branches providing Internet
and Mobile Banking (IMB) services and 2091 branches offering 'Anywhere Banking' services.
Canara bank made a partnership with UNEP to initiate a successful solar loan programme. It was
a four-year $7.6 million effort, launched in April 2003 to help accelerate the market for financing
solar home systems in southern India.
Canara Bank had a major IT initiative to network all branches and move them to a single
software platform. Canara Bank chose Flex cube from I-flex solutions as the application. The
Bank entered into an agreement with IBM for rolling out flex cube to over 1000 branches as part
of Phase I. The all India network of Canara Bank boasts of multiple branches in all the major
cities like Chennai, Pune, Bangalore, Mumbai, New Delhi, Gurgaon, Kolkata, Lucknow and
Hyderabad. The Canara Bank official site gives us an ATM and branch locator that can give you
the exact location and address of your nearest Canara Bank branches and ATM's.
10
2.2) NATURE OF THE BUSINESS CARRIED
Canara Bank is a Public Sector Company undertaking which is running under the Administrative
Control of Govt of India. The total share capital is Rs 410 crores of which government capital is
300 crores, others Rs 110 crores and, the total business of the Bank reached 403,986 crore.
Canara Bank was ranked at 1299 in the Forbes Global 2000 list.
Canara bank offers its services to the industry, NRI’s and all the classes of people such as
Personal Banking, Corporate Banking, NRI banking, Priority credit and other services etc. It has
come to the forefront of the commercial and financial services and established a leadership in the
financial services. The Bank has also carved a distinctive mark, in various corporate social
responsibilities, namely, serving national priorities, promoting rural development, enhancing
rural self-employment through several training institutes and spearheading financial inclusion
objective.
2.31) VISION
“To emerge as a ‘Best Practices Bank’ by pursuing global benchmarks in profitability,
operational efficiency, asset quality, risk management and expanding the global reach.”
2.32) MISSION
“To provide quality banking services with enhanced customer orientation, higher value creation
for stakeholders and to continue as a responsive corporate social citizen by effectively blending
commercial pursuits with social banking”.
11
2.4) PRODUCTS AND SERVICES OF CANARA BANK (table 1)
Personal Banking Corporate Banking NRI Banking Priority and SME Credit
Savings & Account and Deposits Deposit Products Schemes
Deposits
Loan Products Cash Management Loans and SME Business
Services Advances
Technology Loans & Advances Remittance RRB Divison
Products Facilities
Mutual Funds Syndication Services Consultancy Agri-Marketing
Services
Insurance Business IPO Monitoring Other Services Agri-Consultancy
Activity
International Merchant Banking Rural Development
Services Services
Card Services TUF Schemes Social Banking
Consultancy Canara e-Tax CED for Women
Services
Depository One time settlement for
services M& SE
Ancillary Services
12
Fixed Deposits Home improvement Bill Discounting Trustee services –
loan private and
charitable
Recurring Deposits Canara Cash Bank Guarantee Debenture
(Shares) Trusteeship
Kamdhenu Deposits Canara Mobile Loan for SME’s
(Vehicle) Security
Trusteeship
Savings Bank Account Canara Site loan Finance to SSI’s Attorney ship
Saving Gold Scheme Teacher’s loan Agricultural loans Estate & Will
Service
Canara Champ Deposit Scheme Canara Budget
13
Extended Banking
hrs
NRE(Non Resident
External Rupee) Housing Loan Canbank Remit NRI Safe custody
Account money scheme Consultancy
14
Currency Non
Resident) Accounts
CanCash Rupee Drawing Investments
(Shares) Arrangement
CanMortgage Attorney ship
services
CanMobile NRI Service Centre
(Vehicle
CanSite Facilities For
Returning Indians
Loan Against
Deposits
15
on-Lending to
SHG
General Credit Card Social Banking
16
Ownership Pattern of Canara Bank (table 6)
Category Number of % of
shares equity
Promoters
Central govt./state govt 300000000 73.17
Institutional Investors
Mutual funds/UTI 8070610 1.96
Financial institutions 420940 0.10
Insurance companies 31064973 7.58
Foreign Institutional Investors 47581514 11.61
Non institutions
Bodies corporate 1983985 0.48
Individuals -
Individual shareholders holding nominal share capital up 20056041 4.89
to Rs. 1 lakh.
Individual shareholders holding nominal 489984 0.12
Share capital in excess of Rs. 1 lakh.
Trusts 5560 0.00
Clearing Members 74085 0.02
Non-resident India 252308 0.06
Total 410000000 100
17
ownership pattern of Canara Bank
Figure 1
18
2.7) COMPETTIORS INFORMATION
1) State Bank of India:
The State Bank Group, with over 16000 branches, has the largest branch network in India
and the bank has 141 overseas offices spread over 32 countries. State Bank of India is
one of the Big Four Banks of India with ICICI Bank, Axis Bank and HDFC Bank. The
State bank of India is 29th most reputable company in the world according to Forbes. The
products of the bank are Loans Credit Cards, Savings, Investment, vehicles, SBI Life
Insurance etc.
2) ICICI Bank:
It is India's largest private sector bank by market capitalization and second largest overall
in terms of assets. The Bank also has a network of 1,640 branches and about 4,816 ATMs
in India and presence in 18 countries, as well as some 24 million customers. ICICI Bank
offers a wide range of banking products and financial services to corporate and retail
customers through a variety of delivery channels. ICICI Bank is also the largest issuer of
credit cards in India.
3) Bank of India:
It was established on 7 September 1906 is with its headquarters in Mumbai.
Government-owned since nationalization in 1969, It is one of India's leading banks, with
about 3101 branches including 27 branches outside India. Bank of India is a founder
member of SWIFT (Society for Worldwide Inter Bank Financial Telecommunications) in
India which facilitates provision of cost-effective financial processing and
communication services.
19
2.8) INFRASTRUCTURAL FACILITY
Canara bank is located in the centre of the city where the bank has multi-floor building
where it has separate partition for all the departments.
The bank is fully computerized and well furnished with air condition facility to the
employees
The bank provides medical facilities to its employees
It also provides educational facility to the employees and their children.
The bank also provides vehicle faculty or traveling allowances to their employees
The bank also has provided with quarters facilities to its employees (officers).
The bank has established its own training centre to develop the employees’
knowledge, skill & attitude.
20
head office. The circle or the head office verifies and approves or rejects the proposal. The order
(approved/rejected) is sent back to the respective branch, and hence sent to the person. The
figure above provides a clear understanding of the same.
2.10) AWARDS/ACHIEVEMENTS
First National Award, instituted by the Ministry of Micro, Small & Medium Enterprises,
Govt. of India for 'Excellence in Micro & Small Enterprises (MSE) Lending' for 2006-07.
'Golden Peacock Award for Corporate Social Responsibility' for the year 2007. Canara
Bank is the first PSB to receive the award since its institution in the year 1991.
‘Golden Peacock National Training Award-2007’, instituted by the Institute of Directors,
New Delhi, a pioneer in Quality Revolution.
Conferred the Business Super brands Status for 2008.
'The Organization of the Year Award- for PR Excellence', instituted by Public Relations
Council of India.
Excellence in the field of Khadi & Village Industries in South Zone for the year 2006-07,
instituted by Khadi & Village Industries Commission, Ministry of Micro, Small & Medium
Enterprises, Government of India.
Received during 2008-09Conferred 'First Rank' in India's Best Banks awards under the
category 'Strength and Soundness' for 2006-07 by a survey conducted by Ernst & Young.
Best Performing Bank under Rural Employment Generation Programme, (REGP) of
Khadi and Village Industries Commission (KVIC), in South Zone for the year 2007-08,
instituted by the Ministry of MSME, Government of India.
Golden Peacock National Training Award 2008 for excellence in training.
Global HR excellence in Training, an award conferred by the Asia Pacific HR Congress,
the largest rendezvous of HR Professionals, at its Employer Branding Talent Management
Congress held on 22nd and 23rd August 2008, Delhi.
Best Corporate Social Responsibility Practice Award, instituted by BSE, NASSCOM and
Times Foundation.
21
The Bank won two Silver Corporate Collateral Awards for Best Corporate Ad in the Print
Media and Best Corporate Film on Corporate Social Responsibility at the Public
Relations Council of India Awards 2009.
Best Bank in South Zone Award for the year 2008-09 in respect of lending under KVIC and
PMEGP Schemes. The award was handed over by Dr.Manmohan Singh, Hon’ble Prime
Minister of India
The Bank received the Credit Guarantee Approval Certificate issued by CGTMSE from
Shri Pranab Mukherjee, Hon’ble Finance Minister of India.
The Bank aims to reach an aggregate business figure of Rs.5 lakh crore, comprising total
deposits of Rs.285000 crore and advances of Rs.215000 crore.
The Bank will continue to focus on core business, with the objective of augmenting
profits and profitability.
Expanding global footprints, the Bank is likely to open a Representative Office at Sharjah
shortly in addition to RBI approval already obtained in 9 international centres.
Targets to achieve 100% CBS coverage by June 2010
The Bank has plans to open over 200 new branches during FY2011.
22
3) McKINSEY’S 7s FRAMEWORK
The Mckinsey’s 7s plays a vital role for the success of any organization. There are hard and soft
components. The figure below shows the framework.
Fig. 3: Mckinsey’s Framework
Figure 3
3.1) Structure
The design of organizational structure is a downward communication of information in the bank.
The information flows top down, i.e. from top-level management to lower levels. The chairman
and managing director have the sole authority in the organization. They give instructions to the
executive director and the general manager who in turn give instructions to the lower level
managers. The middle level management consists of general manager and company secretary.
Among these departments the General Manager division is very large. It consists of many
sections and sub sections. All sectional heads will communicate or report their sectional
performance or activities regularly to the general manager.
3.2) Skills
The important software for the success any organization is the skills of the
employees & of the management. The Canara bank is having highly skilled employees. The
skills of the organization are:
23
Credit Skills: They face the challenges in improving the asset quality suitable training programs
for upgrading the appraisal & credit monitoring skills, pre-sanction & post-sanction supervision,
including monitoring of stocks, financial statements, etc., will be provided. The rigor of NPA
discipline & provisioning will only increase in the days to come & they have to equip themselves
for this task.
Technology Skills: Canara bank is having a very good brand equity & loyalty of customers.
Bank has already introduced product like, Tele-Banking, credit cards, ATMs etc., cross selling of
other financial services like insurance, mutual funds, government securities. Increasing non-fund
income, personal segment advances & trades finance in order to improve the profitability & to
make growth in business volumes more sustainable. Importance has also been given to areas like
low cost deposits, NPAs/AUCs recovery & reduction in operating expenses to improve
efficiency of their operations.
Operating Skills: Bank has to increasing non-fund income, personal segment advances & trades
finance in order to improve the profitability & to make growth in business volumes more
sustainable. Importance has also been given to area like low cost deposits, reduction in operating
expenses taken sufficient measures to identify measure, monitor & manage various risks
associated with the Banking business in the areas of credit, interest rate & liquidity.
3.3) Style
The style of an organization according to the Mckinsey framework becomes evident through the
pattern of actions taken by members of top management team over a period of time.
24
3.4) Strategy
Strategy indicates a specific program of action for achieving the organization objectives by
efficiently employing the firms’ resources. It involves preparing oneself for meeting unforeseen
factors. It is also concerned with meeting the challenges posed by the policies and actions of
other competitors in the market.
3.5) Systems
Training System : The Bank under various categories were imparted training in diverse
functional areas such as assets liability management, consumer credit, housing finance, retail
finance Recovery, trade finance. The Bank adopts its own training system with the help of their
training centers. Training mainly helps with updating skills, knowledge improvement etc.
Technology System: The bank has initiated business process re-engineering with an effort to
stay at the top in the competition. It has enabled Core-Banking Service, has its own Cheque
Processing unit, and has initiated installation of ATM’s in all the areas.
The Bank has taken necessary steps to implement structured financial messaging system
(SFMS) a modularized software solution for financial message communication in a highly
secured environment.
Recruitment & Selection System: The sources of recruitment at the organization in the form of
both external & internal. The Bank follows the recruitment & selection processes that are
commonly followed by public sector Banks.
Systems and Procedures: Many systems and procedures in the Bank were received re-oriented
and simplified during the year without diluting any controls. Noteworthy among the initiatives
were revision/updating of all ten credit manuals, rationalization of entire applications in retail
lending schemes, simplification of documentation against valuable securities, rationalization of
printing supply and usage of forms, pilot implementation of single window system at select
branches revision of DD payment procedures & streamlining of procedures or scanning of
signature at branches.
25
3.6) Staff
The bank is motivated to harness the unique assets of the human resources for growth of the
institution and to imbibe team spirit for self and mutual development among bank’s staff. The
bank has made inroads towards establishment of quality circle concept among its employees.
Training & Development
Canara bank has been a fore runner in establishment of its own training college at Bangalore,
supported by 13 regional training centers spread over length & breadth of the country. These
centers take care of knowledge, skill & attitudinal development of the employees.
26
4) SWOT ANALYSIS
The bank had envisioned to not only offer financial services but also fulfill social causes such as
removal of superstitions and ignorance, promotion of habit of saving, providing assistance to the
people in need and develop a sense of humanity among the people.
Strengths
It is the first bank in India to have launched Inter-City ATM network
It is the first bank to have been awarded ISO Certification for providing credit card for
farmers for the first time in India along with offering Agricultural Consultancy Services
It has established 3046 branches across the nation as of March of 2010.
It has the maximum number of ATM installations among all the nationalized banks
summing up to more than 2000 of them at 698 centers
1959 branches of the bank provide Internet and Mobile Banking (IMB) services
‘Anywhere Banking’ services are being provided at 2091 of its branches
All the branches of Canara Bank are enabled with Real Time Gross Settlement (RTGS)
and National Electronic Fund Transfer (NEFT) transaction facilities
Bank also offers Personal Banking Services, Corporate Banking Services, NRI Banking
Services and Priority & SME Credit Services.
Weakness
Still sticks to most of the traditional banking systems
Requires training program due to introduction of many new schemes & technologies
Weak research team
Staff take time to get adjusted to the new inventions
Stands 4th position in the nationalized banks ratings
27
Opportunities
To improvise on mutual funds, to lead the banks into MF transactions
To adapt to the new technological inventions, to stay at the top in the competitive market
To provide enough training facilities to the staff, to deliver efficient & effective services
To provide extra privileges to the customers to maintain & retain customers
To attract customers with good loan offers at very impressive rates, against the
competitors.
To be aware of the changes in the market, & provide space for instantaneous changes
Threats
Establishment of private banks, increasing the competition
Introduction of new technologies in the new banks with high infrastructure
Innovative interest rates & attractive customer care services
Adoption of many technologies & banking systems from abroad
Very efficient research team, who are always tracking the new inventions in the market
Most of the private banks provide 24hrs facility
28
5) FINANCIAL STATEMENT ANALYSIS
Ratio Analysis of the Balance Sheet (table 7)
Mar’ Mar ' Mar ' Mar ' Mar ' Mar '
10 09 08 07 06 05
Per share ratios
Reported EPS (Rs) 73.69 50.55 38.17 34.65 32.76 27.06
2) Dividend per share: Dividends are the share of profit distributed among the share holders per
share. The value has been increasing from Rs. 5-10. It has shown an increase of 81.18% over the
last 6 years.
3) Net Profit Margin: (Net Profit before Interest and Tax/Sales)*100. The non operating
incomes and expenses are ignored for computation of profit before tax, depreciation and interest.
The value has reduced by the years, mostly because costs debited to the P&L account are fixed in
nature and increase in sales declines the per unit cost. There has been an increase of 7.4% over
the year
6) Fixed Asset Turn Over Ratio: (Sales/Fixed Assets). It’s a difficult ratio to be analyzed
because the asset values are based on historic costs. There are variations in the values which may
be due to replacement of an asset at an increased price or purchase of an additional asset to
increase production.
7) Current Ratio: (Current Assets, Loans & Advances/Current Liabilities & Provisions). The
banks consider 1.33:1 as the minimum acceptable level for providing working Capital Finance.
This determines the solvency of the company. The values show that the ratio has been decreasing
giving a positive sign, but there has been an increase in the year March 2009 which may be due
to high cash balance, bank accounts without proper investments etc.
30
8) Quick Ratio: (Current Assets, Loans & Advances-Inventories/Current Liabilities &
Provisions-Bank Overdraft). It’s a supplement to current ratio to determine solvency or liquidity
of the company. It also measures the company’s ability to meet its customer’s obligations.
9) Dividend Pay Out Ratio: (Dividend per Share/Earning Per Share). Bank has a considerable
liberal policy, as the values are high in the past years. There has been a little decrease in the ratio,
mostly due to low profits or changes in the earnings ratio.
10) Earnings Retention Ratio: this ratio provides the margin distributed to the share holders
and the percentage retained. The amount retained may be due to further expansion plans of the
company or the investment decisions.
31
PART B
1) EXECUTIVE SUMMARY
Micro-Finance is emerging as a powerful instrument for poverty alleviation in the new economy.
In India, micro-Finance scene is dominated by Self Help Groups (SHGs) - Banks linkage
programme, aimed at providing a cost effective mechanism for providing financial services to
the 'unreached poor'. In the Indian context terms like "small and marginal farmers", " rural
artisans" and "economically weaker sections" have been used to broadly define micro-finance
32
customers. Research across the globe has shown that, over time, microfinance clients increase
their income and assets, increase the number of years of schooling their children receive, and
improve the health and nutrition of their families as the global financial system buckles,
microfinance institutions continue to grow on the back of their record for low risk and solid
returns.
In this paper I tried to cover all the aspects of Microfinance industry in India, starting from
defining microfinance, knowing the need of poor, products of microfinance their demand and
supply, evolution and growth of microfinance industry, reach to clients, major players regulatory
body, present situation, Impact on poverty alleviation, issues, challenges, future potential etc.
with a focus on Canara Bank initiatives. I have explained Canara Bank’s portfolio on
microfinance and the entire scheme that are adopted by Bank for Financial Inclusion, whether
it’s no frill account or KCC scheme ,GCC scheme etc.
2) MICROFINANCE INTRODUCTION
The financially weaker section, like the rest of society, need financial products and services to
build assets, stabilize consumption and protect themselves against risks. MF serves as the last-
mile bridge to the low-income population excluded from the traditional financial services system
and seeks to fill this gap and alleviate poverty.
Microfinance loans serve the low-income population in multiple ways by:
33
(1) Providing working capital to build businesses;
(2) Infusing credit to smooth cash flows and mitigate irregularity in accessing food, clothing,
shelter, or education; and
(3) Cushioning the economic impact of shocks such as illness, theft, or natural disasters.
Moreover, by providing an alternative to the loans offered by the local moneylender priced at
60% to 100% annual interest, microfinance prevents the borrower from remaining trapped in a
debt trap which exacerbates poverty.
MF loans in India range in size from $100 to $500 per loan with interest rates typically between
25% and 35% annually by MFIs and much below by banks i.e. 18 to 25 %.The MF model is
designed specifically to help the low income population overcome typical challenges such as
illiteracy, lack of financial knowledge and deficiency of collateralizable assets. At the same
time, the model takes advantage of existing community support systems and networks to
encourage financial discipline and ensure high repayment rates with an aim of creating social
value. The creation of social value includes poverty alleviation and the broader impact of
improving livelihood opportunities through the provision of capital for microenterprise, and
insurance and savings for risk mitigation and consumption smoothing.
A large variety of actors provide MF in India, using a range of MF delivery methods.
Governments 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.
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 in the creation of social value.
3) MICROFINANCE DEFINITIONS.
According to Robinson, Marguerite.
“Microfinance refers to small-scale financial services for both credits and deposits — that are
provided to people who farm or fish or herd; operate small or microenterprises where goods are
produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain
34
income from renting out small amounts of land, vehicles, draft animals, or machinery and tools;
and to other individuals and local groups in developing countries, in both rural and urban
areas”
The Task Force on Supportive Policy and Regulatory Framework for Microfinance has
suggested a working definition of microfinance as
"Provision of thrift, credit and other financial services and products of very small amounts to the
poor in rural, semi-urban or urban areas for enabling them to raise their income levels and
improve living standards".
While exclusively covering the poor, it lays emphasis on graduating borrowers from pre-mE
stage to post mE stage. This graduation is done through financial and non-financial services. The
emphasis of support under mF is on the poor in 'pre-microenterprise' stage for building up their
capacities to handle larger resources. No specific limit for 'small' amount of financial services is
envisaged.
"Microfinance institutions (MFIs) are those which provide thrift, credit and other financial
services and products of very small amounts mainly to the poor in rural, semi-urban or urban
areas for enabling them to raise their income levels and improve living standards".
35
Non-profit Companies registered under Section 25 of the Companies Act, 1956
ii). Mutual Benefit MFIs
State credit cooperatives
National credit cooperatives
Mutually Aided Cooperative Societies (MACS)
iii). For-Profit MFIs
Non Banking Financial Companies (NBFCs) registered under the Companies Act, 1956
Banks which provide MF along with their other usual banking services could be termed as mF
service providers.
“Microfinance is the provision of a broad range of financial services such as deposits, loans,
payment services, money transfers, and insurance to poor and low-income households and, their
microenterprises”.
Micro credit:
It is a small amount of money loaned to a client by a bank or other institution. Micro credit can
be offered, often without collateral, to an individual or through group lending. E.g. through JLG,
SHG, MCG etc
36
Micro savings:
These are deposit services that allow one to save small amounts of money for future use. Often
without minimum balance requirements, these savings accounts allow households to save in
order to meet unexpected expenses and plan for future expenses. E.g. Cansaral accounts
Micro insurance:
It is a system by which people, businesses and other organizations make a payment to share risk.
Access to insurance enables entrepreneurs to concentrate more on developing their businesses
while mitigating other risks affecting property, health or the ability to work. E.g. insurance for
crop, machinery, equipment, animals etc
Remittances:
These are transfer of funds from people in one place to people in another, usually across borders
to family and friends. Compared with other sources of capital that can fluctuate depending on the
political or economic climate, remittances are a relatively steady source of funds.
5) HISTORY/ORIGIN OF MICROFINANCE
There are 3 main factors that count to the bringing up of Microfinance as a Policy in India
1. The first of these pivotal events was Indira Gandhi’s bank nationalization drive launched in
1969 which required commercial banks to open rural branches resulting in 15.2% increase in
rural bank branches in India between 1973 and 1985.
37
2. The second national policy that has had a significant impact on the evolution of India’s
banking and financial system is the Integrated Rural Development Program (IRDP) introduced in
1978 and designed to be ‘a direct instrument for attacking India’s rural poverty.’
3. The last major event which impacted the financial and banking system in India was the
liberalization of India’s financial system in the 1990s characterized by a series of structural
adjustments and financial policy reforms initiated by the Reserve Bank of India (RBI).
The systems and procedures of banking institutions was emphasizing on complicated qualifying
requirements, tangible collateral, margin, etc., that resulted in a large section of the rural poor
shying away from the formal banking sector. The banks too experienced that the rapid expansion
of branch network was not contributing to an increasing volume of business to meet high
transaction costs and risk provisioning, which even threatened the viability of banking
institutions and sustainability of their operations. At the same time, it was not possible for them
to allow a population of close to 300 million - even if poor - to remain outside the fold of its
business. The search for an alternative mechanism for catering to the financial service needs of
the poor was thus becoming imperative.
The evolution of modern microfinance can be stated with the origin of Grameen bank in the year
1976 and get the independent status of bank 1983 in Government legislations. Dr.Muhammed
Yunus was known as the pioneer of this, he is the father of modern microfinance. Later on his
model was spread all over the world.
38
It was found that poor and low income households, irrespective of rural/urban status have 3 kinds
of needs:
1) Life cycle needs: marriage, other family events, birth, death, education, house construction,
old age, widowhood, festivals, etc.
2) Emergency needs: medical emergencies, natural calamities, theft, accidents etc
3) Investments needs: asset purchase, small business
39
for acquiring small productive assets, such as livestock, using which they can generate additional
income.
2) The next market segment is small and marginal farmers and rural artisans, weavers and those
self-employed in the urban informal sector as hawkers, vendors, and workers in household
micro-enterprises.
This segment mainly needs credit for working capital (crop production), a small
part of which also serves consumption needs. The segment also needs term credit for acquiring
additional productive assets, such as irrigation pump sets, bore wells and livestock in case of
farmers, and equipment (looms, machinery) and work sheds in case of non-farm workers. This
market segment also largely comprises the poor but not the poorest.
3) The third market segment is of small and medium farmers who have gone in for commercial
crops such as surplus paddy and wheat, cotton, groundnut, and others engaged in dairying,
poultry, fishery, etc. Among non-farm activities, this segment includes those in villages and
slums, engaged in processing or manufacturing activity, running provision stores, repair
workshops, tea shops, and various service enterprises. These persons are not always poor, though
they live barely above the poverty line and also suffer from inadequate access to formal credit.
Technically the second and third segments indicated above are eligible for loans from the banks,
but in reality they have been not covered by the Banking System. The first segment is the present
focus of NGO oriented microfinance institutions. Women are also one of the important segment
for microfinance services.
40
contingencies like illness, calamities, death in the family, etc; as a source of equity or margin to
take loans; and finally, as a liquid asset. The safety of savings is of higher concern than interest
rate .
The demand for insurance services, though not very well articulated, is also substantial. This
comes from the fact that not only incomes of microfinance customers low, but are also highly
variable. Insurance by the poor is needed for assets such as livestock and pump sets, for shelter.
Crop insurance could be very useful to the rural poor. Finally, insurance against illness, disability
and death would also reduce the shocks caused by such contingencies, which lead the poor into
taking loans at such times at high interest.
41
estimate of reaching Rs28, 000 crore microfinance portfolio (out of which Rs. 12804 crore from
MFI channel alone) by 2010 was made another projection made by the research and consultancy
firm Intellecap for MFI portfolio under three scenarios (low, most likely and high) ranges from
Rs. 21404- 29974 crore by 2012. RBI data shows that informal sources provide a significant part
of the total credit needs of the rural population.
Banks in India are regulated and supervised by the Reserve Bank of India (RBI) under
the RBI Act of 1934, Banking Regulation Act, Regional Rural Banks Act, and the
Cooperative Societies Acts of the respective state governments for cooperative banks.
42
NBFCs are registered under the Companies Act, 1956 and are governed under the RBI
Act.
There is no specific law catering to NGOs although they can be registered under the
Societies Registration Act, 1860, the Indian Trust Act, 1882, or the relevant state acts.
There has been a strong reliance on self-regulation for NGO MFIs and as this applies to NGO
MFIs mobilizing deposits from clients who also borrow. This tendency is a concern due to
enforcement problems that tend to arise with self-regulatory organizations. In January 2000, the
RBI essentially created a new legal form for providing microfinance services for NBFCs
registered under the Companies Act so that they are not subject to any capital or liquidity
requirements if they do not go into the deposit taking business. Absence of liquidity
requirements is concern to the safety of the sector.
Implementing
organizations
43
Individual Individual
Awareness/ promotional
work
Micro finance intervention through different organization
NATIONAL
v BANKS GOVT. FUNDED DONORS
FINANCIAL
V PROGRAMME /BILATERAL
INSTITUTIONS
PROJECTS
IMPLEMENTING
ORGANISATIONS
DIRECTLY INDIRECTLY
RESOURCE
INVOLVE IN INVOLVE IN
SUPPORT
MICROFINANCE MICROFINANCE
ORGANISATIONS
SHGS INDIVIDUALS
Fig 5
MEMBERS
44
9) MAJOR PLAYERS
The major players which were instrumental in the growth of microfinance industry in India
includes NABARD, SIDBI, Rashtriya Mahila Kosh, FWWB and SHARE Microfin Limited etc.
NABARD
NABARD was established in 1982 to provide credit to the rural sector. NABARD was a pioneer
in microfinance programs in India. The bank’s vision is “to facilitate sustained access to
financial services for the unreached poor in rural areas through various microfinance innovations
in a cost effective and in sustainable manner.” By 2005 NABARD SHG Bank linkage
programme had emerged as one of the largest microfinance programs in the world. NABARD
has also collaborated with NGOs, MFIs, banks and governmental agencies in order to use other
models of rural credit like the Grameen Model and the Individual Banking Model.
SIDBI
SIDBI Foundation for Micro Credit (SFMC) was launched by the Bank in January 1999 for
channelizing funds to the poor in line with the success of pilot phase of Micro Credit Scheme.
SFMC's mission is to create a national network of strong, viable and sustainable Micro Finance
Institutions (MFIs) from the informal and formal financial sector to provide micro finance
services to the poor, especially women.
45
10) GROWTH OF MICROFINACE
1960s – 1980s 1990s 2000
(table 8)
Phase 1 Phase 2 Phase 3
Social banking Financial system approach Financial inclusion
46
Classification of MFIs in India as at the beginning of FY 2010 (table 9)
47
Financial Description Service
Characteristic
Credit Loan amount Determined by the longevity of the client’s association with the MFI.
Not often directly related to the credit needs of the borrower.
Withdrawals Compulsory savings cannot be withdrawn except when the client leaves
the group. Voluntary savings often require some notice of withdrawal
Animal Usually linked with a formal insurance company which obtains bulk
business from the MFI while the latter provides the service of premium
collection; assists in the verification of claims
48
The sheer geographical size of the country, a wide range of social and cultural groups, the large
spectrum of economic classes and a variety of NGOs movement has contributed towards the
diversity of microfinance models in India.
Some of the common models used in India are
1) Self help group model
2) Grameena model
3) Cooperative/mutually aided cooperative model
4) Non banking company finance model
5) Bank using other agencies for distribution of microfinance
50
The organization that has been the most successful in using cooperative forum in rural micro
finance in India has been the Cooperative Development Forum (CDF), Hyderabad. This
approach has realized on a credit union model involving a ‘savings first’ strategy. It has built up
a network of financial cooperatives based upon women’s and men’s thrift groups.
The main features of CDF system are as follows:
The primary entities are the women’s/men’s thrift cooperative which consists of
300 members usually from the same village.
It has started off by promoting much smaller units, but over time it encourage
these small units to merge into larger units as it felt that smaller units are not
viable
Each group has a leader, who convenes the group meetings, collect group savings,
and monitor repayment of loans.
All the members of the primary cooperative constitute the General Body with a 12
member board of directors who are elected for a three year term and adopt a
uniform set of bylaws.
A set of geographically contiguous cooperative federate to form an association
of women’s/men’s thrift cooperatives.
51
India’s Microfinance institutions reached 76.6 million clients against last year’s 59 million,
according to the “State of the Sector Report” September 2009.MFI’s have recorded about 8.5
million clients during the year 2008-09, a growth of 60% over the previous year. More than 50
percent of low income households are covered by some form of microfinance product. The total
outstanding microfinance loans posted a growth rate of 30% or 359.39 billion over the last year’s
level of Rs 229.54 billion.. The SHG loan outstanding has increased by Rs. 71.5 billion with an
addition of 6.9 million clients. MFIs so far reached 234 of the 331 poorest districts identified by
the government. The MF penetration index shows especially in Bihar, Madhya Pradesh,
Rajasthan and Uttar Pradesh compared to extraordinary levels reached in Andhra Pradesh,
Karnataka and Tamilnadu. While last year’s report focused on the increased risk in the sector,
this years’ report takes stock of the uninterrupted growth rate of the sector despite several
internal and external adversities. Today 25 million Indians have taken so called microfinance
loans, often without adequate documentation or collateral, according to Micro-Credit Ratings
International Ltd. In rural India, people are being lent to at 150 percent of the value of their
enterprises.
India is considered as the World’s Largest Market, Most microfinance loans in India range from
5,000 rupees to 20,000 rupees. The country, where more than 600 million people live on less
than $1.50 a day, is the world’s largest microfinance market, Interest rates range from 18 percent
to 35 percent .The Largest 5 MFIs grew at 71.7% in 2008-09 (compared to 59.6% earlier), while
the Next10 MFIs slowed down substantially (down from 71.6% per annum in 2006-08 to just
29.3% growth in 2008-09).This has resulted from competitive pressures and aggressive growth
of the largest MFIs together with a slowdown in the availability of funds from commercial
banks to all but the largest MFIs. Distribution of MFIs is heavily concentrated in South India but
the share of the East is growing. MFIs in the North and the West have become less important
but, the larger institutions in the south and east have started to expand North and West. MFIs
have increasingly shifted towards Grameen-type programmes at the expense of SHG-based
programmes (SHG).
MFI loan portfolios grew by a factor of nearly 35 between 2002 and March 2009 reaching a
figure of around Rs 8,000 crore or over $1.5 billion. The share of the Top10 MFIs increased
from 43% in 2002 to over 72% in 2009. Average outstanding loan balances have increased from
52
Rs 3,300 ($72) in 2002 to Rs 5,300 ($104) with average disbursements of Rs 8,500 ($173) in
2009. Indian microfinance continues to be the most efficient in the world, the operating
efficiency of Indian MFIs measured by the average operating expense ratio declined further,
from 15-16% in the mid-2000s to 11.5% in 2008-09. This compares with a median OER of
15.0% for Asia and 18.1% globally. The Top10 MFIs, however, have not improved their
efficiency over the past few years. The increase in OER for the Top10 MFIs from 10.8% in
2004 to 12-13% in recent years is a result of the fast growth of these organizations. Yet, despite
the improvement in OER over the past few years, the yield on portfolio of Indian MFIs has risen
significantly. This means that Indian microfinance borrowers are now paying a relatively high
cost for their microfinance loans, higher than the global median – a reversal of the earlier
situation when Indian MFI clients paid the lowest cost in the world – just 25% in 2006. This is
caused mainly by the increase in yields of the largest MFIs; the Top10 average yield has risen to
33.6% by March 2009 - the extent of the widening margin is apparent from the figures below.
Analyzing this issue by MFI organizational form shows that it is the NBFCs, as a group that is
charging the highest rates.
(table 11)
GROWTH IN INDIAN MICROFINANCE SECTOR
Year ending march 31 200 2005 2006 2007 2008 2009
4
Outstanding portfolio($ $80 $252 $496 $824 $1535 $2346
millions)
Growth rate 215 96.80 66.10 86.30 52.80
% % % % %
Borrowers (million) 1 2.3 4.9 7.9 14.2 22.6
Growth rate 130 113% 61.20 79.80 59.20
% % % %
Source: Microfinance India State of the Sector Report 2009
53
outstanding portfolio(in millions)
$2,500 $2,346
$2,000
$1,535
$1,500 outstanding portfolio(in
millions)
$1,000
$824
$496
$500
$252
$80
$0
2004 2005 2006 2007 2008 2009
Figure 6
borrowers (million)
25
22.6
20
15 14.2
borrowers (million)
10
7.9
4.9
5
2.3
1
0
2004 2005 2006 2007 2008 2009
Figure 7
Analysis:
It can be analyzed that the outstanding portfolio for loan has been increased by 96.58% from
2004-09 and number of borrowers has increased by 95.57%. This shows the increase business of
microfinance .
54
THE BIGGEST MFI IN INDIA Source: M-Cril ratings 2009 (table 12)
Name of Headquarter Legal Lending No. of Loan Borrower Net worth
MFIs status model branches outstandin no (Rs mn)
g (Rs mn)
1) NABARD-Bank -SHG Model- Bank directly finance the SHG without the intervention/
facilitation by any NGO.
2) NABARD-Bank-SHG Model- Bank directly financing SHGs with NGOs acting as facilitator
(most popular model)
55
3) NABARD-Bank-NGO-SHG Model- Bank financing indirectly to SHG, consists of smaller
group compared to SHGs. The NGO accepts the contractual responsibility for repayment to the
Bank. (table 13)
56
(2007-08) (crore) (2008-09) (crore) SHG)
Bank loan disbursed to 518 1970.15 581 3732.33 12.2 89.4
MFIs during the year
Bank loans outstanding 1109 2748.84 1915 5009.09 72.7 82.2
with MFIs as on 31
March
57
1) The resources required of microfinance is small, entry and exit are easy, tasks are (perceived
to be) simple and people’s acceptance is high, field itself requires new ideas and NGOs more
readily adopt new ideas especially in the above situation mentioned.
2) Supply push ; that is microfinance is canvassed by various factors, including the NABARD,
SIDBI, FWWB, RMK, CAPART, RGVN, various donor funded programmes especially by
the IFAD, UNDP, World Bank and Department for International Development, UK, and
lately commercial banks, has greatly added. Induced by the worldwide focus on microfinance,
donor NGOs too have been funding microfinance projects.
3) The concrete results and sustained interest, quick and high ‘customer satisfaction among
beneficiaries of microfinance has attracted most of NGOs to this trade.
4) The idea of implementing microfinance appears simple. The most common route followed by
NGOs is promotion of SHGs. It is implicitly assumed that no ‘technical skill’ is involved.
Besides, external resources are not needed as SHGs begin with their own savings. Those NGOs
that have access to revolving funds from donors do not have to worry about financial
performance any way.
5) Finally, to many NGOs, microfinance is a way to financial sustainability. Especially for the
medium-to-large NGOs that are able to access bulk funds for on-lending, for example from
SIDBI, the interest rate spread could be an attractive source of revenue than an uncertain,
highly competitive and increasingly difficult-to-raise donor funding.
B. For Financial Institutions and banks:
Banks have several advantages over nonbank, micro lending institutions
1) They offer loans, deposits, and other financial products that are, in principle, attractive to a
microfinance clientele.
2) The process helps the banks to meets its priority sector targets.
58
3) Comparison to other rural lending by banks, MF has much more favorable terms.
4) They are regulated institutions fulfilling the conditions of ownership, financial disclosure, and
capital adequacy that help ensure prudent management.
6) Many have physical infrastructure, including a large network of branches, from which to
expand and reach out to a substantial number of microfinance clients.
7) They have well-established internal controls and administrative and accounting systems to
keep track of a large number of transactions.
8) Their ownership structures of private capital tend to encourage sound governance structures,
Cost-effectiveness, and profitability, all of which lead to sustainability.
9) Because they have their own sources of funds (deposits and equity capital), they do not have
to depend on scarce and volatile donor resources (as do NGOs).
59
terms
Interest rates Exorbitantly high Low and very Low , affordable Reasonable and
affordable and subsidized affordable
Repeat possible Possible but not Possible but not Stream of credit
borrowings likely likely is assured
Loan access Very quick Extremely time Extremely time Simple and quick
procedures consuming and consuming and
complicated complicated
Loan Informal but Exhaustive and Exhaustive and Simple and
application exploitive complex complex informal
procedure
Collateral and mandatory Required but Not required Not required
demand hypothecation of although a social collateral
promissory asset may suffice charge on the is used for
notes asset becomes physical
automatic collateral
incentives none none None Repeat and larger
loans, interest
rebates
Indian microfinance with one of the highest growth rates globally since 2002, has emerged as
one of the most socially conscious, commercially viable, and financially sustainable. According
to a MIX market study, India has one of the lowest average loan sizes of around $150 as well as
the lowest yield on portfolio of 21.2%. The small loan size combined with the low interest rates
testify to the social inclination of Indian MFIs, which seek to genuinely foster financial inclusion
among the poor and alleviate poverty. In conjunction with this goal, Indian MFIs have succeeded
not only in comfortably covering costs, but also returning healthy profits and Return on Assets
(ROA). This highlights Indian MFIs’ operational efficiency and ability to function on tight
budgets. MFIs in other countries such as Brazil and Mexico have higher profit margins, but they
offer significantly larger loans with interest rates typically between 40-65%.
The inherent efficiency and resiliency of the Indian microfinance industry proved critical during
the recent financial meltdown during which growth continued unabated despite a slowdown in
the flow of funds which negatively affected growth in microfinance in other markets around the
world. This demonstrated self-sustainability is prognostic of the long term viability and potential
60
of the sector. Moreover, the Indian financial system as a whole has demonstrated its long-term
confidence in the industry through its own investment choices. Whereas the global average of
domestic investment in microfinance hovers around 65%, over 90% of the funding in India
comes through domestic channels, highlighting confidence in the underlying business model and
expectations of high future growth and returns.
61
4) Microfinance Helps in Reducing Client’s Dependence on Money Lenders (though use of
this source continues)
In comparison with non-clients, fewer client households are borrowing small loans from high
cost informal sources. Nevertheless, one-third of ‘old’ client households borrows from
moneylenders especially for larger amounts (for example, needed to meet marriage obligations)
or for amounts needed urgently (for example, needed for medical costs). Microfinance, so far,
has not reduced either the business or the terms of moneylenders. There is some evidence for the
reverse, that microfinance may in fact increase informal money lending, if clients need to 'top up'
micro-loans, or borrow to repay according to the installment schedule.
5) Impact on poverty
These are clear effects of microfinance, but whether they are sufficient to move households out
of poverty is unclear. But it has helped in reducing poverty for some clients, but not for all.
62
4) Social Obligation and not a Business Opportunity
Micro-finance has historically been seen as a social obligation rather than a potential business
opportunity.
63
leaves an MFI with the choice to be incorporated as a company and then become an NBFC or a
Bank. The latter requires a license and a minimum start up equity of Rs100 crores, which is very
difficult for an MFI to mobilize. If an MFI opts to become an NBFC, it has the problems of
minimum entry-level capital requirement i.e.Rs 2 Crores, wef April 1999. It is difficult to
mobilize any borrowings from Indian Financial Institutions due to the negative image of NBFCs
in general. The MFI taking loan in foreign currency loans are subject to exchange risks.
64
17) MICROFINANCE AT CANARA BANK
Financial Sector has made substantial progress since Nationalization and particularly at a rapid
pace since the beginning of the financial sector reforms. However, even today a vast segment of
the society remains vulnerable and excluded from the opportunities & services provided by the
financial sector. As a responsible corporate entity Canara Bank realize and share the concern that
continuous exclusion is bound to have social ramifications besides lopsided and inequitable
economic prosperity. There should be a process of bringing the disadvantaged, underserved and
those generally from the weaker sections of the society into the fold and the efforts on inclusion
shall be across all segments of the society and regions but shall have a focus on underserved
regions and underserved communities.
The delivery of simple and key Financial Services, namely access to payments and remittance
facilities, savings, loans and Insurance services at affordable costs to those who tend to be
excluded was the main concern for bank. Financial inclusion shall graduate the excluded to
65
economic freedom through capacity building and as entrepreneurs of economic activities and
enabling factor in the country's goal of an inclusive growth.
Canara Bank has grown into a veritable giant in the Banking firmament with well over 3046
branches and a business of over Rs. 4, 00,000 Crores. The Bank that had chosen as its path to
serve the social cause, serve the common man, and has never wavered all through its journey of a
Century of years and more .The Bank set up an Education fund in 1952 to help deserving poor to
pursue studies in Medicine, Law, and Engineering etc. Launched the Housing Loan Scheme for
Lower income families in 1956.Financing Agriculture had been taken up as a mainstream
activity since early 1960s.One of the first Public Sector Banks to introduce Education loan
Scheme in 1978 that Pioneering efforts in Self Help Group Credit linkage in 1990s and has credit
linked more than One and a half lakh Self Help Groups until now Specific financial products
developed to the focus groups like marginal & Tenant farmers, Artisans, Self- employed women
entrepreneurs .Now, the CANSARAL savings accounts (No Frills account) Scheme and General
Credit card Scheme.
66
Microfinance portfolio of Canara Bank (fig in lakhs)
Figure 8
67
Micro Finance portfolio of Canara Bank- as on
31.03.2010
Figure 9
Analysis:
It can be seen clearly that the Canara Bank’s share in financial year 2009 is more through direct
lending.i.e. 44% more through NGO facilitation and 54% more through MFIs. Similarly in the
year 2010 the share through direct lending is 46% more through NGO facilitation and 52% more
than MFIs.
68
70000
59310
60000
48763
50000
43203
40000
31074
30000 25052 23823
20144
17996 18600
20000 year 2007-08
year 2008-09
10000
year 2009-10
526 786 926
0
r it Gs ce
s
ecto r ed SH n
ys lc to va
rit ra ad
io ltu ed s
pr ir cu nc E
v a SM
to ag ad
ed
anc Amt in crore
v
ad
Figure 10
Analysis:
From the above graph it can be easily analyzed that the advanced to priority sector has been
increasing year by year and this growth is 37.28% from 2007-08 to 2009-10, in same way there
focus is on agricultural credit also and that has shown an increase of 39.20 % as well advanced to
SHGs has been increased 76.04% from year 2007-08 to 2009-10 and also to SME advances has
shown an increase of 67.06% from 2007-08 to 2009-10 in the microfinance portfolio.
The products and the scheme launched by the Bank recently and the existing products aiming
financial inclusion are
69
It is to provide a hassle free credit to rural/semi urban households without insistence on security
purpose or end use of the credit. It can be sanctioned for any general purpose including
consumption. In this the loan quantum should be 50% of that of the net income of the entire
household subject to a maximum of Rs 25,000
2500000
2179683
2000000
1729416
500000 450267
188762
124732
64030
0
Cansaral GCCS
Figure 11
Analysis:
The cumulative number of Cansaral accounts has shown a 384% increase from the financial year
2008-09 to 2009-10 and the number of GCC accounts has been increased 194.8% from the
financial year 2008-09 to 2009-10. The reason for this growth was aggressive marketing by bank
and coverage of more and more people under the scheme.
30000
27188
25000
20000
17333
15974
15000 No.of a/cs
13308
amt (in lakh)
10000
6500
4800 5000
5000 4000
0
Mar’07 Mar’08 Mar’09 Mar’10
Figure 12
Analysis:
The number of accounts under DIR scheme has shown an increased by 104.2% by Mar’07 to
Mar’10 more people are covered under the scheme by doing aggressive marketing and creating
awareness among the people.
5) Scheme for Redemption of Debts of Farmers from Non-institutional
sources
71
Its main purpose is to prepay the debt availed by the farmers from non institutional sources so as
to relieve the farmer from debt burden from non-institutional sources and the loan quantum
maximum of is Rs 50,000 subject to 150 % of the gross annual income, subject to repayment
within 5yrs in quarterly/half yearly/yearly installments.
Debt Swapping Scheme
(table 18)
outstanding Mar’09 Mar’10
No of a/c Amt (in crore) No.of a/c Amt (in crore)
Debt swapping 10447 47.61 10446 41.33
Scheme
12000
10447 10446
10000
8000
6000 No of a/c
4761 Amt (in lakh)
4133
4000
2000
0
Mar’09 Mar’10
Figure 13
Analysis:
The number of accounts from Mar’09 to Mar’10 is almost same. There has not been any
significant change but the amt has shown a slight decrease of 13.19% from the financial year
ending Mar’09 to Mar ’10.
6) Canara Grameena Vikash Vahini
Bank has provided Canara Grameena Vikas Vahini Vehicles in 50 potential districts across the
country. The objective of the vehicle is to create awareness about Bank's products and Banking
72
facilities among the rural households and enable the Bank branches to design programmes based
on feedback on the Bank's schemes and requirements of villagers. The vehicle is provided with
pamphlets covering the schemes of the Bank, Application forms for opening "No frill" accounts
and other accounts. Trained agriculture extension officers of the Bank and other staff who are
well conversant with the schemes of the Bank and needs of the rural households are
accompanying the vehicles to disseminate the information and create awareness.
10) Bank has signed MOU with Govt. of Karnataka for implementing Smart Cards
for disbursement of Government Benefits, like NREGS wages payment and Social Security
Pension in three districts namely, Bellary, Gulbarga and Chitradurga.
73
ATM is specially designed for providing ATM facility to the rural folk as well as other
customers. This VAN shall move in and around Bangalore city at the pre-determined places.
These ATMs are accessible to Biometric card holders also. Apart from the ATM facility, this
mobile Van is having customer lobby where the Bank personnel are available to market/educate
the various products of the Bank.
Bank has launched a New scheme called "Canara Nayee Disha “by bringing all the existing
eligible credit schemes under one umbrella, for financial deepening under the second phase of
financial inclusion. As per the scheme, the Bank has targeted 20% of the households which were
brought to the Banking fold, during total financial inclusion process, for providing necessary
credit individually or through group mechanism. It is the endeavor of the Bank to provide credit
facility to 3.50 lakh households to the extent of Rs.750 crore, under the new scheme.
2500
2223
2000 1917
1516 1448
1500
no. of a/cs
amt in lakh
1000
772 728
500 394
288
0
Mar'07 Mar'08 Mar'09 Mar'10
Figure 14
Analysis:
The number of accounts under Krishi Mitra Card has been increased from the financial year
ending Mar’07 to Mar’10 by 148% and the amount have been increased by 402% from Mar’07
to Mar’10 that shows the aggressive marketing by canara bank after the inception of separate
microfinance branch since 2006.
17) Scheme for Self Help Group (SHG) finance/ SHG Credit Linkage
It is a very popular and widely accepted group lending scheme. Unlike JLGs/MCGs it is a
savings linked scheme. The scheme provides for Opening of SB account with the bank, group
meetings, internal lending and recovery, maintenance of books and registers, minimum period of
six months existence for availing bank loan. Bank loan is sanctioned basing on the corpus of the
75
group which includes the savings of the group, cash in hand, amount lent to the members out of
own sources, donations received and interest earned by SHG. The limit permitted is 1:4 of the
owned funds. ( Table 20 ) (a/c in actual)
Cumulative Performance Mar'07 Mar'08 Mar'09 Mar'10
Groups formed 150278 210441 275100 319990
Groups Credit linked 120165 172290 224647 275349
Loan sanctioned (Rs. In
crores)* 649.67 990.37 1365.29 1844.07
350000 319990
300000 275100 275349
250000 224647
210441
200000 172290 Groups formed
150278 Groups credit linked
150000 120165 Loan sanctioned (Rs. In
100000 crores)
50000
649.67 990.37 1365.69 1844.07
0
Mar'07 Mar'08 Mar'09 Mar'10
Figure 15
Analysis:
The above graph shows a progressive trend in the SHG group formed that has been an increment
of 112.9% from the FY ending Mar’07 to Mar’10 and in also the Credit linked group has been
increased as well as in terms of loan sanctioned increased by 64.76 % in compare of financial
year ending march 07 and march 2010, this is because microfinance sector is considered as
profitable and bank started aggressive marketing.
Performance during the year (table 21)
Performance During the
Year Mar'07 Mar'08 Mar'09 Mar'10
Groups formed 37507 60363 64659 44890
Groups Credit linked 36814 52125 52358 50701
76
70000
64659
60363
60000
52125 52358 50701
50000
44890
10000
0
groups formed groups credit linked
Figure 16
Analysis:
The number of groups formed has been increased by 19.6% from year ending Mar’07 to Mar’10
where as it has shown a decrease of 30.57% from year ending Mar’09 to Mar’10.
In case of groups credit linked also there has been an increase of 37.72% from year ending
Mar’07 to Mar’10.
77
development corporation, ST development corporation, Municipalities/ City Corporations, Block
development offices etc
21) Other products like Kisan Credit Card, Kisan Suvidha, Artisan Credit Card, Swarojgar
Credit Card, Cantools etc can also encourage financial inclusion.
78
TFG/JLG 765 8.54 2638 14.2 821 14.7 997 42.08
4500
4208
4000
3500
3000
2638
2500
no of a/c
amt in lakh
2000
Series 3
1420 1470
1500
997
1000 765 854 821
500
0
year ending Mar'07 Year ending Mar'08 year ending Mar'09 Year ending Mar'10
Figure 17
Analysis:
The amount for JLG and TFG lending has shown an increasing trend. Number of accounts under
this has increased by 30.32% from year ending Mar’07 to Mar’10 and the amount has also been
increased by 392.7%.
Microfinance expansion over the next decade can be expected to be an extension of what has
been achieved so far while overcoming the hurdles that have been posing difficulty in effective
microfinance operation and its expansion. Who will take the lead and where, are the two
questions that need to be addressed first without any bias. Given their experience and expertise,
it is expected that the current providers of financial services to the poor will take the lead in the
expansion of microfinance.
There may be several participants in this process and they will expand their services by existing
microfinance institutions expansions of their operations to areas where there are no microfinance
programs and cooperatives/credit unions may be more active in providing financial services to
the poor, more NGOs can incorporate microfinance as one of their programs. In places where
there are no microfinance institutions, the government channels at the grassroots level may be
used to serve the poor with microfinance.
Postal savings banks may participate more not only in mobilizing deposits but also in providing
loans to the poor and on lending funds to the MFIs. More commercial banks may participate both
in microfinance wholesale and retailing. They many have separate staff and windows to serve the
poor without collateral. International NGOs and agencies may develop or may help microfinance
programs in areas or countries where microfinance is not a very familiar concept in reducing
poverty. Community based organizations may get involved in microfinance services.
In the case of NGOs, which have more focus on poverty lending, funding is a very critical issue
for both start-up and scaling-up projects. Unless the funding problem is taken care of, it will be
difficult for microfinance programs to start and expand their operation and increase their
outreach. The situation may be different for regulated MFIs who can mobilize savings and use it
for on lending purposes and who have access to commercial sources. All the possible financial
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services can be tapped and all the actors committed to poverty alleviation whether in urban or
rural areas can get involved in increasing the microfinance outreach.
In addition to the focus on bottom poor, attention may also be given to the ‘‘missing middle’’.
Development of Small-Scale Enterprises through microfinance will not only increase the
outreach but will also help the generation of more employment and income for the poor. It is
expected that in the following years there will be considerable deepening of microfinance in this
direction along with simultaneous drives to reach and serve the poorest of the poor. The role of
the government, the donors, the networks and the media will remain as important as before in
creating an enabling environment, in providing/channeling funds and creating awareness for the
rapid expansion of microfinance.
19) CONCLUSION
Microcredit and microfinance have received extensive recognition as a strategy for poverty
reduction and for economic empowerment. Microfinance is a way for fighting poverty,
particularly in rural areas, where most of the world's poorest people live. Accessing small
amounts of credit at reasonable interest rates give poor people an opportunity to set up their own
small business. Many studies show that poor people are trustable, with higher repayment rates
than conventional borrowers.
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When poor people have access to financial services, they can earn more, build their assets, and
cushion themselves against external shocks. Poor households use microfinance to move from
everyday survival to planning for the future: they invest in better nutrition, housing, health, and
education.
Most poor people cannot get good financial services that meet their needs because there are not
enough strong institutions that provide such services. Strong institutions need to charge enough
to cover their costs. Cost recovery is not an end in itself. Rather, it is the only way to reach scale
and impact beyond the limited levels that donors can fund. A financially sustainable
institution can continue and expand its services over the long term. Achieving sustainability
means lowering transaction costs, offering services that are more useful to the clients, and
finding new ways to provide banking services to the poor. At the end it should be mentioned that
Poor people with no income or means of repayment need other kinds of support before they can
make good use of loans. In many cases, other tools will alleviate poverty better—for instance,
small grants, employment and training programs, or infrastructure improvements. Where
possible, such services should be coupled with building savings.
20) SUGGESTION
Canara bank should help in formation as well as maintenance of SHGs that offer financial
guidance and credit, promote savings, free members from unfair debt burdens, and create
collective action opportunities that minimize exploitation of women and other
marginalized groups.
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Offer skills training and capacity-building workshops to increase economic
independence, empowerment, and local employability of women and other underserved
groups.
Develop small businesses that produce saleable goods, such as traditional handicrafts.
Research and analyze numerous topics that include local economic conditions, migration
patterns, obstructions to economic growth, and efficacy of microfinance programs.
Canara bank should expand and increase exposure of microfinance programs to outlying
villages.
Canara bank should also help in marketing, distribution, pricing, and management
training to local microenterprises.
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The purpose of the study is to gain in depth knowledge about Microfinance- a tool for
poverty eradication.
The study gives details about the demand and supply of microfinance services.
It provided insight about various schemes and initiatives adopted by the RBI,
NABARD,SIDBI etc
It helped me to understand in detail all the schemes of Canara Bank for Financial
inclusion.
The study provided exposure to the benefits and impact of Microfinance and financial
inclusion.
The study gave details about the RBI guidelines and targets.
The study shows the quantitative impact of each scheme and tool.
The study also provides information about the extent of financial inclusion
It has also details regarding 100% inclusion achievement.
22) BIBLIOGRAPHY:
Books
1) Debadutta kumar Panda , Understanding Microfinance
2) Microfinance perspectives and operation by Macmillan publication for Indian institute of
banking and finance
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Reports
Director’s Report of Canara Bank 2007-08
Director’s Report of Canara Bank 2008-09
Director’s Report of Canara Bank 2009-10
A report on Dhaka Starting Microfinance in India – Vijay Mahajan, Bharti Gupta Ramola and
Mathew Titus , Basix
Research paper by Prabhu Ghate Research paper by Vishal Sehgal Presentation by N. Srinivasan
Websites
http://www.canarabank.com/English/scripts/PCCentreEDFWomen.aspx
http://www.canarabank.com/English/scripts/PersonalBanking.aspx
http://www.canarabank.com/English/scripts/CorporateBanking.aspx
http://www.canarabank.com/English/scripts/NRIBanking.aspx
http://www.canarabank.com/English/scripts/prioritycredit.aspx
http://www.canarabank.com/English/scripts/VissionandMission.aspx
http://www.canarabank.com/English/scripts/ShareholderInformation.aspx
http://www.canarabank.com/English/scripts/AwardsandAch.aspx
http://www.canarabank.com/English/scripts/Subsidiaries.aspx
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/CANARA%20BANK
%20-%20PRIORITY%20CREDIT.htm
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Microfinance%20-
%20Wikipedia,%20the%20free%20encyclopedia.htm
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Reserve%20Bank
%20of%20India.htm
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Reserve%20Bank
%20of%20India3.htm
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Small%20customers,
%20big%20market%20...%20-%20Google%20Books.htm#v=onepage&q&f=false
file:///C:/Documents%20and%20Settings/User/Desktop/micro%20finance/Dead%20Presidents!
%20-%20India%20Equity%20Research%20%20Canara%20Bank%20-%20Annual%20Report
%20-%202008-2009.htm
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23) ABBREVIATIONS
IRDP-Integrated Rural Development Programme
IFAD- International Fund for Agricultural Development
JLG-Joint Liability Group
MFIs- Micro Finance Institutions
ME-Microenterprises
MACS-Mutually aided co-operative society
MCG-Micro Credit Group
NBFC-Non Banking Financial Corporation
NGO-Non Govt. Organization
OER-Operating Efficiency Ratio
SHG-Self Help Group
SFMC-SIDBI Foundation for Microcredit
SGSY-Swarna Jayanti Gram Swarojgar Yojna
UNDP-United Nations Development Programme
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