Origin of Microfinance

The idea of providing monetary administrations to low wage individuals is very old. Many casual credit aggregations have been working in numerous nations for a few years like the susus in Nigeria and Ghana, chit supports and Rotating Savings and Credit Associations (Roscas) in India, tontines in West Africa, pasanaku in Bolivia, hui in China, arisan in Indonesia, paluwagan in Philippines and so on. It is accepted that at first, the casual money related establishments developed in Nigeria going back in the fifteenth century. Such kind of foundations began securing in Europe throughout the eighteenth century when in 1720 the first credit trust focusing on destitute was established in Ireland (Seibel, 2005).
In 1847, some credit co-agents were made in Germany which served 1.4 million individuals by 1910. In 1880s the British controlled administration of Madras in South India attempted to utilize the German investigation to address neediness in India. This exertion brought about enrollment of more than nine million poor to credit co-agents by 1946. Throughout the same time the Dutch provincial directors built a co-agent rustic keeping money framework in Indonesia which in the end got to be Bank Rakyat Indonesia (BRI), now one of the biggest Microfinance Institutions (Mfis) of the world (Schwiecker, 2004). In the 1970s, an ideal model change began to occur. The disappointment of financed government or benefactor driven organizations to take care of the demand for monetary administrations in creating nations prompted a few new methodologies. Bank Dagan Bali (BDB), made in Indonesia in 1970, was the most punctual bank to establishment business microfinance (Schwiecker, 2004). In 1973, ACCION International, a USA based NGO, dispensed its first credit in Brazil at business investment rate to begin a micro-endeavor. One year later in 1974, the Self-Employed Women's Association of India (SEWA) began a bank to give credits to poor ladies. In 1976, Muhammad Yunus, a teacher of Economics at Chittagong University, Bangladesh started an exploratory examination venture of giving credit to the country poor. He gave a little credit of 856 Taka ($27) from his pocket to 42 poor bamboo weavers and found that little advances fundamentally changed the lives of these individuals and they could pay back the credits with investment. The achievement of this thought headed Yunus to secure Grameen Bank in 1983 in Bangladesh. This system indicated amazing development rates in Bangladesh, especially throughout the 1980s and 1990s. It empowered social innovators and associations everywhere throughout the world to start tries different things with diverse microfinance conveyance techniques to bring budgetary administrations to poor people. It is presently embraced worldwide in the nations of distinctive mainlands. Many universal Ngos, for example, Foundation for International Community Assistance (FINCA), Americans for Community Cooperation in Other Nations (ACCION), Freedom from Hunger, Opportunity International, Co-agent for Assistance and Relief Everywhere (CARE), Consultative Group for Assisting the Poor (CGAP), and so forth are pushing microfinance programme for making new organizations and battling neediness in a supportable manner. Microfinance in India can follow its beginnings once more to the early 1970s when the Self Employed Women's Association ("SEWA") of the state of Gujarat shaped a urban helpful bank, called the Shri Mahila SEWA Sahakari Bank, with the destination of giving keeping money administrations to poor ladies utilized in the chaotic area in Ahmadabad City, Gujarat. The microfinance segment happened to advance in the 1980s around the idea of Shgs, casual bodies that might furnish their customers with abundantly required funds and credit administrations. From quiet beginnings, the area has become altogether through the years to turn into a multi-billion dollar industry, with bodies, for example, the Small Industries Development Bank of India and the National Bank for Agriculture and Rural Development dedicating huge fiscal assets to microfinance. Today, the main five private segment Mfis arrive at more than 20 million customers in about every state in India and numerous Indian Mfis have been distinguished as worldwide pioneers in the business.
1.2 The Government of India and the RBI has a stated goal of promoting financial inclusion
According to recent RBI estimates, there are over 450 million 'unbanked people' in India, most of who live in rural areas. The term 'unbanked' refers to people who have no access to formal financial services, but rather must rely on either family, or informal providers of finance, such as the village moneylender. It is undisputed that access to finance is critical for enabling individuals and communities to climb out of poverty. It is also generally agreed that relying on the limited resources of village moneylenders exposes the poor to coercive lending practices, personal risks and high interest rates, which can be a much as 150%. Therefore the Indian Government and the RBI have a policy of 'financial inclusion'. As part of this policy, the government requires Indian banks to lend to 'priority sectors', one of which is the rural poor. Until recently, banks were happy to lend money to MFIs who would then on-lend funds, primarily to poor women across rural India. The banks have welcomed this policy because historically they tended to charge MFIs average interest rates of 12-13% and benefited from 100% repayment rates. Thus, by lending to MFIs, banks have been able to meet their 'priority sector' lending requirements with what historically has amounted to a risk-free and very profitable arrangement.
1.3 The goal of financial inclusion must include the private sector
Microfinance in India is currently being provided by three sectors the government, the private sector and charities. These three parts, as extensive as they may be, have just a little part of the capital and geographic scale needed to meet the mind-boggling need for account around India's rustic poor.
The main 10 private division microfinance suppliers in India together serve short of what 5% of the unbanked populace of India ' roughly 20 million customers. For4 case, SHARE Microfin Limited ("SHARE") and Asmitha Microfin Limited ("Asmitha"), two of the five biggest Mfis in India, have practically Rs 4,000 crore ($900mm) advanced to in excess of 5 million poor ladies in 18 Indian states (before the emergency, the consolidated extraordinary credit portfolio had been as high as Rs 6,750 crore ($1.525bn)). Yet, in spite of the span of Mfis like SHARE and Asmitha, just a small amount of the mind-boggling need is constantly met.
Private area Mfis have a key part to play if the objective of fiscal incorporation is to be acknowledged, as not the administration or philanthropies have the capital nor plan of action needed to take care of the voracious demand for account in provincial India. As general society posting of SKS Microfinance underscored, private part establishments can pull in progressively a lot of private capital, with a specific end goal to quicken the development of the business, which is key to extending budgetary incorporation as far and as quick as practicabl

Chapter 2
Review of Literature
Acil Navsarjan Rural Development Foundation (ANaRDe) in Gujarat, ADITHI in Bihar Professional Assistance for Development Action (PRADAN) and Rural Development Association for Vocational Training (RUDSOVAT) in Rajasthan came advanced in this sector. These NGOs were proving actual acknowledged in abbreviation abjection of poverty of its clients and providing employments opportunities. Though in its adolescent age microfinance area had a adapted advance and complication of impacts, as appulse on income, employment, health, education, apartment and sanitation etc. The programme was arena an important role in the action of development decidedly if subsidy and admission based schemes were accident their importance.
Sheokand (2000) discussed the change of Indian banking and its abortion to accommodate acclaim accessories to poor people. NABARD started Self help Group- Bank Linkage Programme in 1992, which was advised as a battleground development in banking with the poor. It was empiric that Bounded Rural Banks security-oriented alone banking arrangement was replaced by the accumulation of acclaim to focused groups. According to him the government sponsored programmes had active abundant of the bread-and-butter amplitude but did not accomplish the cold of abating poverty. Self Advice Group- Coffer Linkage Programme had been accustomed actual acknowledged for the socioeconomic empowerment of harder amount poor, accouterment banking casework to them and advancing them to yield up bread-and-butter activities for abjection alleviation. Although this programme was not a catholicon for the problems of rural poverty, yet it had the abeyant for acceptable a abiding arrangement of rural lending in the country with abounding accord from the academic banking arrangement and after any arrest from the government..
Fisher and Sriram (2002) explained that the banking area developed in India by the end of 1980s was abundantly accumulation and ambition driven. The government sponsored abjection advancement schemes accomplished poor accretion ante with misutilisation of subsidy and abridgement of ascertainment of claim ethics. The claim amount beneath the Integrated Rural Development Programme (IRDP) remained beneath than one-third and the programme created about 40 actor coffer defaulters. In 1989, with the aboriginal official accommodation waiver, acclaim conduct was befuddled to the wind. This created acrimony amidst bankers about the acclaim ability of poor people. Also, a ascendant angle was developed that the accounts for rural poor humans was a amusing obligation and not a abeyant business opportunity. Gaiha et al. (2001) in a abstraction assured that beyond sections a part of the poor were not covered in the two above anti-poverty programmes (Rural Public Works and IRDP) in India and the appulse of these programmes was bound due to their gross targeting and alternative of non-poor as participants.
Singh (2003) had explained the abortion of government accomplished anti-poverty programmes and the success of microfinance programme as an able abjection advancement action in India. According to him the government-implemented rural development programmes bootless because these were centrally invented (lacking accord of bounded akin institutions), politically motivated, had leakages, confiscation and abundant authoritative expenses. Added than 250 actor humans in
Yunus (2006) in a abstraction explained the differences amid Grameen Coffer and accustomed banks. He explained that the Grameen Coffer alignment was about the about-face of the accustomed cyber banking methodology. Accustomed banking was based on the assumption that the added you have, the added you get. As a result, added than bisected of the citizenry of the apple was beggared of banking casework of the accustomed banks as accustomed banking was based on collateral, focused on men, amid in burghal centers and endemic by affluent with the cold of accumulation maximisation. On the contrary, the Grameen Coffer started with the acceptance that acclaim should be accustomed as a animal right,
Where one who did not acquire annihilation get the accomplished antecedence in accepting a loan. Grameen Coffer alignment was not based on the actual control but on the abeyant of a person. Grameen Bank, which was endemic by women, had the cold of bringing banking casework to the actual poor, decidedly women to advice them action poverty, break assisting and financially sound. They were poor because association had denied them the absolute amusing and bread-and-butter abject to abound on. Grameen Bank accomplishment was to move them from the flowerpot to the absolute clay of the society.

Chapter 3
Research Methodology
3.1 Objectives and Rationale of the Study
This research is fully based on secondary data on an analysis of challenges in scaling up microfinance in Bihar. All the data collected through journals, Review of literature, case study, and book.
The study aims to:-
' To study of different stakeholders who are working in microfinance in Bihar.
' Impact analysis of microfinance in Bihar
' To study major challenges faced by the stakeholders
' Strategy to scaling up Microfinance in Bihar.
3.2 Type of Research: Exploratory
3.3 Analysis: Tabulation & Comparison

Chapter 4
Bihar: A Background
Bihar is a landlocked state situated in the eastern most part of the north Indian politico-land zone. The state is twelfth biggest regarding topographical size (94163 sq. km) and third biggest by population (8.28 crore) in the nation. It is additionally known for its bottomless common assets, enduring streams, ripe terrains and a long eminent history. Despite all these conditions, the state remained one of the poorest states in the nation since autonomy. Condition further disintegrated after the state's division in 2000. The state held very nearly 75 for every penny of the populace, while it was left with just 54 for every penny of the area and a considerable measure of strain on assets.
Table 4.1: Bihar at a Glance

Area 94163 sq. kms
No. of divisions 9
No. of districts 38
No. of blocks 534
No. of Panchayats 8471
No. of Villages 45103
Population 8287876
Female 39724832
Population Density 880 per Sq km
Sex Ratio 921 (Highest Siwan- l033, Lowest Patna- 873)
Literacy Rate 47.53% (India- 65.2%)
Female Literacy Rate 33.57%
Households 1374410
Agricultural workers 1100424
Household industry workers 5262817
Poverty ratio 42.56% (India-26%)
SC population 15.70% (India-16.2%)
ST population 0.90% (India- 8.2%)
Average land holding 0.75 ha (India-1.57 ha)
Human development index 0.367 (India- 0.472)
Infrastructure development index 91.31 (India- 100)
Languages spoken Hindi, Urdu, Bhojpuri, Magadhi, Maithili
Religions Hindus, Jains, Muslims, Christians
Source - www.gov.bih.nic.in and Source: Census of India 2001, HDR 2001.

Table 1 gives a look at the general situation of the state. It is rightly brought up that "state's execution falls seriouslt behind national trends...if Bihar does not enter the standard of national monetary development and success; its execution will keep on widenning significantly"3. On the off chance that we go into the points of interest of Bihar's backwardness, the measurable figures indicate that 42 for every penny of the state's rustic populace is underneath neediness line, representing about very nearly one-fifth of the nation's country poor 4. It has the least for every capita pay in the nation with just Rs 5772 against national normal of Rs 22946. Bihar recorded a decennial populace. Development rate of 28.4 for every penny throughout 1990-2000 with a thickness of just about 880 against 234 of Indian normal. In the event that we further portray destitution as far as hardship of fundamental human needs - nourishment, cover, safe drinking water, sanitation, wellbeing administrations, instruction, and comforts - the Bihar is much poorer.

Bihar is a poor state with a colossal shortage in foundations giving credit. The destitution degree in Bihar is 42.56 for every penny, which is high in correlation to Pan India's neediness proportion of 26 for every penny. The reasons refered to for steady destitution and backwardness in Bihar is multi-fold. High rate of populace development, under-ventures in the key divisions of agribusiness and training, substantial reliance on the farming area for work, non presence of agro-help commercial enterprises, characteristic disasters like surges (22 regions are surge inclined), or more all poor political vision are a percentage of the frequently refered to variables. The Sector Report of NABARD cited infrastructural destitution likewise as one of the serious issues in the state. Ladies' condition in the state is far and away more terrible. As stated by the Planning Commission's National Human Development Report (NHDR), 2001, female future in Bihar in 1992-??96 was insignificant 55 years. NHDR demonstrates that in 1991 around one in four ladies in country Bihar were required not to survive past the age of 40, while in Kerala the relative figure was one in 25. Female proficiency rate is likewise as low as 35 for every penny, much lower than the national normal (54%). There is a feedback that the state's deliberations in the change of the status of ladies are not extremely noteworthy.

Bihar has 3735 managing banking institutions contrasted with 73836 in India (5.1% offer). This gives a populace of 25000 being served a bank office contrasted with 16000 at the national level (Table 2). The credit deposit proportion is short of what a large portion of the national normal. Throughout 2007-08, 19370 new Shgs were bank credit connected (3.5% offer) and 6873 new SHG financial balances were opened. Reserve funds of Shgs with banks added up to Rs 5059.6 lakh while this sum was Rs 351270 lakh at the national level (1.4% offer). It is likewise watched that throughout 2007-08, sum dispensed under SHG-bank linkage plan was Rs 112.75 crore which is 2.7 for every penny experience aggregate nation's SHG funds with bank

Chapter 5
FINANCIAL INSTITUTION AND THEIR ROLES

Table 5.1: Banking Network in Bihar (as on July 2008)

Items* Bihar India
Total number of bank branches (Including RRBs
and Co-operative Banks) 3735 73836***
Bank branch per '000 population 25 16
Credit Deposit ratio 33.48% 74.2%
Number of new SHG Bank A/cs opened in 2007-08 6873 NA
Number of new SHG Bank credit linkages in 2007-08** 19370 552992

Source: 24th SLBC Review Meeting Report, 31st March 2008.

' NABARD@ SLBC meeting July 2008 and Microfinance State of the Sector Report 2008.

' Bihar Economic Survey 2006-07, Govt. of Bihar.

5.1 Spread of SHGs
Taking into account the accessible information, one can say that there are more than 2.76 lakh SHGs in Bihar. On the other hand, there could be a cover in the numbers cited by distinctive agencies5 and the figure may not have barred the ancient SHGs, which could be expansive. An alternate point is that information of SHGs pushed by NGOs is not clear, as there is no proof of aggregation of information at state level (Table 3). One can recognize that if there should arise an occurrence of numerous NGOs, the amount of SHGs framed may be much higher than the amount of SHGs that accept limited time help from diverse orgs or ventures. It can likewise be perceived that there are a few little NGOs pushing SHGs that anticipate formal backing from real orgs. In any case, given this liquid circumstance, one can even now put a number out on SHGs (NABARD has begun preparing a yearly report of Shgs now).
Table 5.2: Number of SHGs promoted by Agencies

SHPI No. of SHGs promoted (2008-9)
NABARD (up to March 2008 92009
SGSY (up to June 2008) 131923
PACS (up to March 2008 4510
Bihar Mahila Samakhaya (up to September 2008-9) 3790
WDC (up to March 2008-9) 10835
BRLPS (up to September 2008-9) 2438
NGOs 0
CBOs 0
Total 245567

As regards geographical the spread of SHGs in Bihar, a large portion of the Shgs are focused around the significant urban communities of Muzaffarpur, Bhagalpur, Gaya and Patna. The northern regions of Madhubani, West Champaran, Darbhanga and Nawada have great number of SHGs. Areas like Shekpura, Sheohar, Lakhisarai, Arwal and Madhepura, which are retrograde regions, have less number of SHGs.
5.2 Role of the Government and SHGs IN BIHAR

Pointing at the Bihar's growth, the government launched numerous projects in the state. In spite of the fact that the Bihar government has done little development, it has obliged the projects that came its direction. From the earliest starting point, the Departments of Rural Development, Women and Child Welfare, Economic Affairs, and so forth have been assuming an imperative part in the advancement of the SHG development in Bihar. Particularly, the Department of Rural Development has attempted a few ventures utilizing SHG model. A large portion of these tasks were actualized through the administration advertised offices like DRDA and WDC. Around all the activities actualized, the Department of Rural Development's project SGSY is taking a vital part in the advancement of SHGs. The division demonstrations as a nodal office for other SHG special organizations and working nearly with RBI and NABARD that play an advancement and overseeing part in Bihar. It is sways banks to create arrangements identified with giving to SHGs. In this manner, in a manner the Department of Rural Development is the significant promoter of SHGs. Regarding early ventures, which were dependent upon the SHG display in Bihar, Rashtriya Mahila Kosh, Indira Mahila Yojna and Swarna Jayanti Gram Swarojgar Yojna are the real activities. The DFID supported Poorest Area Civil Societies (PACS), is additionally a significant extend that helped a whole lot to the SHG advancement in the state. Furthermore critically, the legislature advertised offices like Mahila Samakya, WDC, BRLPS, and so on has been taking a significant promoter part in the state; some of them conveying administrations through NGOs. The ventures and the organizations that were and still are in the advancement of SHGs and their inclination are examined next.
5.3 Bihar Mahila Samakya (BMS)
Bihar Mahila Samakya Society, a central government undertaking, is one of the soonest ventures that began shaping and supporting ladies self improvement gatherings in Bihar. It began work with four areas at first in 1992 however now had stretched its work to 14 locale. The principle goal of Mahila Samakya is to engage ladies through instruction. Despite the fact that its primary center is on social intermediation, particularly the sexual orientation value issues, acknowledging the need for financial strengthening it additionally supported the development of thrift and credit bunches. By September 2008, Mahila Samakya shaped something like 5119 assemblies with 3889 being thrift and credit bunches. Of the thrift and credit SHGs, 324 SHGs are interfaced to NABARD and 600 are connected to SGSY. In right on time 2000, Mahila Samakya went into structuring of organizations as higher- level zenith bodies for supportability of Shgs. Till date it has pushed 46 group level and 9 piece level organizations. Of the 9 piece level alliances, 7 are enrolled under the Societies Act. All these leagues are generally in social intermediatio.

5.4 Rashtriya Mahila Kosh (RMK)
Rashtriya Mahila Kosh (National Credit Fund for Women) is an autonomous enlisted social order secured by Central Ministry of Women and Child Development in 1993. RMK was a creative instrument for giving credit to poor ladies, to fill the hole between what the managing an account division offers and what the poor need. RMK encourages micro-credit backing to the poor ladies for money era, preparation, aptitude advancement and lodging exercises to make them financially autonomous. It predominantly channelized its backing through Ngos, Women Development Corporations, Cooperative Societies, Shgs structured under diverse activities like Swayamsidha or Swa-Shakti and so on. RMK empowers shaping of Shgs for advancement of thrift and credit prompting pay era exercises. RMK outlined exceptionally inventive plans and items for the profit of poor ladies. It furnishes backing to Ngos with 5 years of experience in running micro credit programs as mass loaning to the degree of Rs 5.0 crore. Indeed leagues with great track record are qualified. RMK has diverse plans like Working Capital Term Loan Scheme and Family Loan Scheme for the profit of SHGs and SHG parts. Working Capital Term Loan Scheme is intended to empower vocation exercises and Family Loan Scheme blankets all the liabilities of a family- therapeutic, marriage, instruction, buy of nourishment grain and sustenance stuff in mass, apportion, apparel, burial service/conception and likewise celebration and different religious costs. Nonetheless, total account for all reasons ought not surpass seven times of funds of the beneficiary or Rs 10000 for every year, whichever is more level. The beneficiary ought to spare no less than 15 for every penny of the sum taken as credit, which is acknowledged as edge cash. The investment charged under diverse plans is 5-8 for every penny on lessening equalization. RMK is putting forth numerous different plans too. According to June 2006 information, RMK stretched out backing to 15427 ladies through 1643 SHGs in Bihar and dispensed a measure of Rs 325.83 lakh of the authorized Rs 397.26 lakh. RMK throughout 2002-03 financed 62 NG)s. NIDAN was the significant accomplice NGO in Bihar. NIDAN gained Rs 118 lakh from RMK throughout 2004. For obscure reasons RMK has not discharged any trusts to any association in Bihar in 2008. It gives the idea that RMK has boycotted numerous offices because of terrible execution.

5.5 Indira Mahila Yojana (IMY)
The primary SHG based ladies' strengthening system of Ministry of WCD; Indira Mahila Yojna (IMY) was propelled in 1995-96. It pointed at sorting out ladies at grass root level to encourage their interest in choice making and their strengthening. The system considered SHGs as well as bunches and square alliances. On the other hand, the plan was not a triumph on the grounds that it had no organized preparing projects and there was no procurement for screening, managerial expenditures and so on.

5.6 Swarnajayanti Gram Swarojgar Yojna (SGSY)
SGSY is a midway supported system for the provincial poor propelled in April 1999. It has traded a large portion of the prior independent work and associated projects like Integrated Rural Development Program (IRDP), Training of Rural Youth for Self- Employment (TRYSEM), Development of Women and Children in Rural Areas (DWCRA), Ganga Kalyan Yojana (GKY) and so forth. SGSY has considered all the qualities and shortcomings of these projects and outlined itself as a credit-cum-subsidy program that blankets all parts of independent work, for example, association of poor into self improvement gatherings, preparing, credit engineering, foundation and showcasing.

SGSY points at giving maintainable salary to the rustic poor and making countless endeavors in the country zones. DRDA has pushed about 131913 ladies SHGs by June 2008 (Table 4). The greater part of the SGSY assemblies is shaped with BPL parts with an enrollment of 10 which are acknowledged as high hazard bunches. DRDA advertises SHGs by giving Rs 3000 to shaping of a SHG and opening of a financial balance. It additionally gives credits to SHGs to the tune of Rs 3.0 lakh for consuming salary era exercises.

5.7 Poorest Areas Civil Society (PACS)
PACS is often a DFID reinforced enterprise introduced in 2002. The main time of the commencing finished in April 2008 and the 2nd stage is actually depended when to commence in '09. Enhancement Solutions may be the actualizing org on the undertaking in Bihar. PACS was launched to deal with the actual people associated with trouble rather than the negative effects. The particular commencing expects to boost the existence associated with tribes as well as regressive instructional classes by simply surrounding SHGs as well as empowering thrift, small undertakings as well as credit history packages. The true secret concerns were known to usually are supervision, do the job, defining associated with underestimated places as well as elimination in the event the converter should have a good incident associated with spikes as well as dried enter. Reinforcing associated with NGOs, named municipal cultural get relationships (Csos), to create individuals' relationship is actually recognized as the ideal technique for the location on the cultural as well as cost infirmities associated with Bihar. PACS was prompted to function increasingly in the territories exactly where govt tasks were not worthwhile. With Bihar, PACS is actually operating in 2940 villages associated with 117 squares more than per day places by way of 41 grass origin municipal cultural get relationships, a variety of them to comprehend simple method accomplices. These villages usually are multiply above the rise willing division of Kosi-Bhagmati piece of cake towards the dried time of year willing section associated with Gaya- Nawada and also other weakest aspects of Bihar. PACS methodized 4500 women based SHGs using over 62000 elements. These SHGs get full investment resources associated with more than Rs 1.0 crore. These demonstrations to be a reliable basic for actualizing almost any destitution lightening software in Bihar. A percentage on the gatherings has been collaborated using NABARD also. Maximum sets of SHGs, named Mahila Adhikar Morcha, have been additionally molded nevertheless certainly not extremely effective in operating and the bank-linkages have been mild. Commonly, many experts have sensed which the IGP tactic has not did wonders and also a genuine enterprise evaluation is actually missing. On the other hand, PACS usually are considered successful in politics defining.

5.8 Bihar Women Development Corporation (WDC)
Bihar Women Development Corporation (WDC) is a society that was set up on the activity of the state government in 1991. It works nearly with the Department of Welfare, Government of Bihar and goes about as a nodal org for actualizing ladies improvement programs in Bihar. WDC tries to work particularly for the reason for country ladies to enable them. To accomplish this, it has collaborated with NGOs working at grass root level and has been actualizing distinctive activities through SHGs. WDC fundamentally concentrates on arranging and supporting SHGs, advertising ability around ladies, building limits through preparing projects, pushing business endeavor around ladies, undertaking showcasing and processing exercises, and pushing leagues which can do fiscal intermediation and help SHG's for undertaking job exercises. WDC is blanket 534 pieces in 22 areas.

Notwithstanding different imperatives, it has arrangements to stretch the system to 38 regions in a staged way. Central state/state government ventures that are actualized by WDC are Swa-Shakthi, Swayamsiddha, Swawalamban, Mukhyamantri Nari Shakthi Yojna (MNSY), Deep and a Urban Slum venture. Under these tasks, WDC has advertised 10825 SHG's. It has fabricated acknowledge linkages of Shags' for banks, and dispensed about Rs 3.46 crore as advances with a normal of Rs 30800 for every SHG. Another project called Mukhymantri Narishakti Yojna has been begun in the state through WDC, which is the stage 2 of the Swayamsidha extend and embody all the positive parts of Indira Mahila Yojana, Swashakthi and Swayamsiddha ventures. Under the system, ladies' SHG's are to be shaped on an immersion mode in chosen squares where WDC has generally interceded. The principle target of the project is to engage the ladies through foundation building, micro money and job intercessions. These SHG's might involve just BPL ladies. The venture period is to be 8 years starting from 2008. WDC is face feedback as it screens and audits more at NGO level than the group level.

5.9 Bihar Rural Livelihood Project Society (BRLPS)
The Government of Bihar, with the support from World Bank, launched the Bihar Rural Livelihoods Promotion Society (BRLPS), called JEEViKA in 2006. BRLPS expects to enhance provincial business alternatives and works towards social and financial strengthening of the country poor and ladies. The targets of the venture incorporate the advancement of associations for the rustic poor and makers to empower them to get to and arrange better administrations, credit and holdings from open and private part orgs and fiscal foundations. The undertaking puts resources into building limit of open and private administration suppliers and assumes a synergist part in pushing the improvement of the micro account and agribusiness segments. The venture is focused to advertise 40000 SHGs and 4000 SHG organizations at town/bunch/territory level over a time of five years. The undertaking is operational in 102 pieces of 6 areas viz., Muzaffarpur, Nalanda, Khagaria, Gaya, Purnia and Madhubani. BRLPS is taking specialized backing from Indira Kranthi Patham of Andhra Pradesh. The model being trailed by BRLPS is like that pushed in Andhra Pradesh, a three level model of SHG league, i.e., SHGs at home level, optional foundations, for example, town associations at group or region level and tertiary organizations at piece level. It has embraced an approach that can help SHGs consume social assembly, credit activation and techno linkage exercises. BRLPS embraced the system of reinforcing the limits of existing and new SHGs through Community Resource Persons and Best Practices Promotion.

5.10 Bank Linkage of SHGs
A standout amongst the best projects backed in the micro fund area has been SHGs-bank linkage program6. It was on RBI's refereed that banks began offering credits to SHGs. On RBI's prompted banks uprooted all operational aggravations and made courses of action to assist and dispense micro credit by designating sufficient endorsing forces to extension chiefs. Banks were encouraged to make the advance requisition structures, strategies and records basic for a brief and bother free micro credit. Banks are asked to try hard and fast exertions to decrease the monetary intermediation expense and dispensing slacks. In any case, Bihar SHGs are at the bottom if there should be an occurrence of both the parameters of creation and credit help by financing foundations around numerous states. The southern states like Andhra Pradesh alone represented 39 for every penny of the aggregate linkage. It has been in the cutting edge in the SHG development. Indeed while avoiding north-eastern area, where bank-linkage represents just around 5 for every penny of the aggregate program, the SHG linkage circumstance in Bihar is still exceptionally poor contrasted with other northern states (Table 5). The yearly development regarding linkage and linkage sum is demonstrated in Table 6. It is indicated that there is a positive pattern in the year 2007-08. On the other hand, 9 for every penny diminish in linkages is seen throughout 2005-06, which happened because of SHG's poor reimbursement of past credits on account of surges and coming about harvest misfortune throughout the year. Throughout 1993 on RBI's drive, banks in Bihar started recognizing procurement of credits to SHGs shockingly with any surety. Bank of Maharashtra and Canara Bank were the two banks that brought out independent rules for SHGs. From that point forward under RBI and NABARD weight different banks began opening records and loaning advances to the gatherings. In any case, business banks and local provincial banks are the pioneers in giving bank-linkage in Bihar. Today of the 33 business banks in Bihar, 15 are included in the SHG-linkage program. Obviously State Bank of India as lead bank in the state is an animated member. 2007-08 saw a huge change in bank-linkage. On the off chance that one passes by SLBC information, the amount of SHGs connected throughout 2007-08 was 49738. The linkage sum remained at Rs 240.99 crore. Regardless of these exertions, in Bihar, SHG- bank linkage is extremely poor. The sum dispensed is moderately little contrasted with different states/districts. One must say that combined bank credit for every SHG is the most reduced contrasted with different states.

Table 5.3: Growth of SHG Bank Linkage

States 2005 2006 2007 2008 Rank in 2008
Maharashtra 71144 134470 225858 325425 1
Rajasthan 60017 98271 137937 174192 5
Uttar Pradesh 119678 163911 198787 239929 3
West Bengal 92689 132251 181863 227395 4
Orissa 123276 190896 234651 308591 2
Madhya Pradesh 45108 67125 70932 84336 7
Bihar 29015 45221 72858 92018 6
India 1638456 2248565 2929973 Na
Source: State Level Bankers Committee (slbc.bih.nic.in) and NABRD State Focus Paper.

Table 6 shows general advancement of SHG- bank linkage by March end 2008. In Bihar aggregate number of SHGs having sparing records with bank remained at 95869, only 1.91 for every penny of national figure. The offer of business banks and provincial rustic banks in this methodology is very little distinctive. If there should arise an occurrence of bank credits dispensed throughout 2007-08, the offer of Bihar in advances dispensed is small 1.56 for every penny for an offer in SHGs of 1.48 for every penny. Provincial country banks have higher experience SHGs offer (3.11%) contrasted with business banks (1.1%) while the offer in credit sum is 2.67 for every penny for territorial rustic banks and 1.25 for every penny for business banks. It is intriguing that in Bihar however business banks have more SHGs connected they have generally poor execution contrasted with local provincial banks regarding provisioning of credits. The normal reserve funds of SHGs with banks is Rs 4761; business banks Rs 4371 easier than local banks Rs 5581 (Table 7). The normal bank credit dispensed throughout 2007-08 is Rs.76362 for every SHG. Here business banks have dispensed higher normal bank credit contrasted with territorial provincial banks. Additionally, the sum in sparing records of SHGs with banks at the national level is higher crosswise over sort of banks, yet for every SHG bank credit is higher in Bihar contrasted with national normal for business banks and easier for Regional Rural Banks; normal is higher in Bihar however at Rs 76362 contrasted with India at Rs 72076.

Table5. 4: Credit Linkage Status of SHGs in Bihar

Linkage of new Cumulative Linkage amount Cumulative (Rs
Years groups during the number of SHGs of new groups
crore)
Years credit linked (Rs crore)


2000-04 8085 16246 51.82 Na

2004-05 11769 28015 37.42 Na

2005-06 18206 46221 31.20 1052.19

2006-07 26517 72638 82.54 2334.07

2007-08 49738 92008 240.99 Na

Table 5.5: Progress of SHG-Bank Linkage (31 March 2008)

India Average Bihar Average
Items SHGs Amount amount SHGs Amount Amount
(Rs lakh) Rs (Rs lakh) Rs

Savings Accounts of SHGs 5009794 378538.94 7556 95869 4562.89 4760
with Banks

Commercial Banks 2810750 207773.45 7392 60136 2568.61 4271

Regional Rural Banks 1386838 116648.83 8411 35733 1994.28 5581

Cooperative Banks 812206 54116.67 6663

Bank loans disbursed during 1227770 884926.24 72076 18116 13833.64 76361
2007-08

Commercial Banks 735119 540390.35 73511 7919 6739.99 85112

Regional Rural Banks 327650 265184.14 80935 10197 7093.65 69566

Cooperative Banks 165001 79351.75 48092

Source: www.nabard.org.

As regards the area level circumstance, table 8 shows that up to March 2007, 72339 Shgs were bank joined and two areas viz., West Champaran and Gaya represented 30.4 for every penny of all bank interfaced Shgs and five regions (Nawada, Muzaffarpur, Patna, est Champaran and Gaya) represented 47 for every penny of all SHG- bank joins. The throughout 2006-07 circumstance is West Champaran and Gaya represented 22.63 for every penny of all bank connected Shgs and five locale (Nawada, Aurangabad, Patna, West Champaran and Gaya) represented 40.45 for every penny of all SHG- bank joins. At the lowest part is Shekpura. The hop in bank linkage happened in 2007 as indicated from the table when 36.1 for every penny Shgs were bank connected of the aggregate. On the nature of Shgs the figure underneath shows that 51 for every penny NGO-Sphis are evaluation B while 29 for every penny are review An and 20 evaluation C. Something like 6.22 for every penny are ancient, which is a low rate.

5.11 Banks' Role in Promotion of SHGs and Linkage
Commercial Banks and Regional Rural Banks are the real suppliers of the bank-linkage in Bihar. A couple of banks have additionally themselves consumed the part of a SHPI especially in ranges where the NGO vicinity is insignificant. As such, they assume a double part of SHPI and credit supplier. NABARD has set rules for banks for selecting self improvement gatherings for linkage. These incorporate:

' The gathering ought to have been in animated presence for at any rate a time of 6 months.

' The gathering ought to have been effectively undertaking reserve funds and credit operations from its assets.

' Democratic working of the gathering wherein all parts feel that they have a say, ought to be obvious.

' The gathering is administering legitimate records and records.

' The brokers ought to be persuaded that the assembly has not started to be just for the purpose of investment in the task and benefitting themselves of profits there under.

' There ought to be a real need to help one another and cooperate around the parts.

' The SHG parts ought to ideally have homogenous foundations a

Table 5.6: District-wise SHG-Bank Linkage up to 2007

Ditstrict SHGs credit Cumulative Share in Total
Linked 2006-07 linkage up to 2007 of 2 of 3

1 2 3 4 5
Siwan 124 225 0.47 0.31
Saran 468 1786 1.79 2.47
Sheohar 30 155 0.11 0.21
Supaul 535 1404 2.05 1.94
Madhepura 138 344 0.53 0.48
West Cham. 2575 11936 9.86 16.50
East Champaran 1242 3492 4.76 4.83
Gopalganj 348 760 1.33 1.05
Arwal 582 993 2.23 1.37
Buxar 316 566 1.21 0.78
Bhojpur 750 1216 2.87 1.68
Jehanabad 591 1380 2.26 1.91
Munger 602 1105 2.30 1.53
Aurangabad 1456 2335 5.57 3.23
Gaya 3335 10055 12.77 13.90
Nawada 1910 3901 7.31 5.39
Jamui 819 1781 3.14 2.46
Banka 120 598 0.46 0.83
Bhagalpur 648 2616 2.48 3.62
Katihar 344 965 1.32 1.33
Purnea 866 2002 3.32 2.77
Rohtas 1002 1528 3.84 2.11
Kishanganj 475 798 1.82 1.10
Araria 294 680 1.13 0.94
Madhubani 472 1800 1.81 2.47
Sitamarhi 383 1199 1.47 1.66
Muzaffarpur 686 4162 2.63 5.75
Kaimur 268 368 1.03 0.51
Vaishali 566 1435 2.17 1.98
Patna 1291 3947 4.94 5.46
Nalanda 600 1547 2.30 2.14
Samastipur 586 1795 2.24 2.48
Darbhanga 719 1444 2.75 2.00
Saharsa 317 714 1.21 0.99
Khagaria 145 274 0.56 0.38
Begusarai 250 550 0.96 0.76
Lakhisarai 197 342 0.75 0.47
Sekhpura 68 141 0.26 0.19
Total 26118 72339 100 100
Source: NABARD (www. nabard.org).

5.12 SHG Ratings
NABARD began its refinance backing to banks for financing SHGs under the SHG-Bank Linkage Program in 2001. The credit is offered for both homestead and non-cultivate exercises that are actually possible and monetarily reasonable. Micro-entrepreneurial exercises are particularly swayed to help ladies to upgrade their vocation status. According to NABARD State Focus Paper 2008-09, the amount of Shgs acknowledge joined as on 31st March 2007 was 72339 Shgs (aggregate) and the sum accepted was Rs 37 crore, at a normal of Rs 5000 for every assembly. Throughout 2007-08, NABARD Bihar has discharged an aggregate award backing of Rs 44.68 lakh for advancement and up scaling of the SHG-Bank Linkage Program and related exercises in the state.

5.13 Commercial Banks
SBI the lead bank of Bihar, in a manner is one of the real SHG advertising banks in the state. It not just is swaying different banks to enhance their system, additionally joining forces with the state government for the execution of activities like BRLPS. Other nationalized banks additionally demonstrated great enthusiasm toward the advancement of Shgs in the state. For instance, Punjab National Bank offered Civil Society Organizations Rs 1000 for structuring each one SHG that will be joined to the bank later on. SBI, Bank of Maharashtra, Canara Bank and private banks like ICICI have additionally given credit-linkage to Shgs. While the greater part of the banks gave immediate credit linkage to Shgs, ICICI and HDFC decided to give mass adds up to Ngos for on giving to Shgs.

SIDBI likewise propelled an unique unit called SIDBI Foundation for Micro Credit (SFMC) in January 1999 for channelizing trusts to poor people. SFMC is the pinnacle wholesaler for micro money giving an extent of fiscal and non-monetary administrations, for example, advance stores, stipend help, value and establishment building backing to the retailing Mfis in order to encourage their improvement into fiscally manageable elements. Mfis might on give specifically to Shgs/ people or root their help through their accomplice Ngos and Mfis. They might likewise embrace any viable loaning channel in order to successfully give budgetary support to the poor customers to meet their requirements7. SFMC gives need based yearly aid to Mfis. SFMC's ability building endeavors are coordinated towards Mfis as well as towards littler/grass root establishments occupied with micro account operations, preparing, consultancy, rating and effect evaluation, and so forth and other administration suppliers as preparing, workshops, workshops, introduction and presentation visits. SFMC is likewise assuming a huge part in pushing proper approaches and regulations and to go about as a stage for trade of data over the segment.

5.14 Regional Rural Banks
Regional Rural Banks (Rrbs) serve particularly country needs and Bihar has great system of RRB. Alongside business banks, RRBs with the help of NABARD are the significant suppliers of the SHG bank-linkage in Bihar. Anyhow a number of them are discovered to be misfortune making. Principle reasons are poor reimbursement rate. Till March 2008, Rrbs have given credit linkage to 10197 SHGs with a measure of Rs 70.94 crore

Table5. 7: Regional Rural Banks and SHGs

RRB Year of Districts SHGs to Grant Grant No. of SHGs
Sanction Covered Promoted Sanctioned released Promoted Linked

Madhubani 2000 Madhubani 300 1.55 0.53 152 102
KGB

Saran KGB 2002 Saran 130 1.32 0.00 65 2
Champaran GB 2002 East & West 500 4.80 0.00 30 30
Champaran

Magadh GB 2000 Gaya 300 1.55 0.00 74 16
Bhojpur Bhojpur,
Rohtas,

Rohtas GB 2002 Buxar & 150 1.50 0.00 288 150
Kaimur

Bhagalpur
Banka GB 2002 Bhagalpur, 300 2.70 0.13 0 0
Banka

Munger,
Khagaria,
Jamui,
Sheikhpura
Munger KGB 2004 Lakhisarai 270 2.70 0.00 0 0
Total 1950 16.12 0.66 609 300
Source: SLBC Bihar.

5.15 Private Banks ??
Private Banks like HDFC, ICICI, and so forth are likewise all hands on deck of micro account. HDFC is the main private business bank which is giving sparing office to SHGs in Bihar, however has not given any credit linkage to SHGs so far. ICICI, however not in the advancement of SHGs straightforwardly, is giving bank linkage access to the SHGs. SHGs can open their reserve funds account and likewise can get credit from ICICI. SHGs can open bank accounts with a base equalization of Rs 1000 without any yearly charges. On the off chance that the base equalization is not upheld, the assembly is charged an extra measure of Rs 100 for every quarter. At the time of record opening, aggregations are obliged to give a letter of distinguishing proof from their pushing office and an aggregation determination. Opening a funds account is not necessary for taking an advance. ICICI permits SHG to acquire a credit up to Rs 2.00 lakh for least 6 months to greatest advance residency of 24 months with a main ban of 3 months. Advances are given according to the credit need and not restricted to reserve funds various for any reason. In all the procedures from encouraging the linkage and suggesting credit to advance reimbursements Shpis assume an extremely pivotal part. There are punishments for late installment of duty. Encouraging NGO accepts a charge up to 1.5 for every penny of the aggregate advance reimbursement on effective credit finish for administrations rendered regardless of number of SHGs credit interfaced. The significant issue with ICICI is that it takes 15 for every penny of the advance as security store. In spite of the fact that the items offered are great, the premium rate is likewise high contrasted with different banks. Despite the fact that Bihar is given top necessity by ICICI, it has not put genuine endeavors in enlarging its backing in the state. Real reason referred to by bank powers for not putting resources into Bihar is the governances in the state. Nonetheless, from 2008 financial year onwards ICICI is attempting to system with 10??15 accomplices, ideally NGOs and assemble a portfolio of Rs 100-150 crore.

In spite of the fact that a generous number of SHGs is pushed by different offices in Bihar, not all qualified Shgs have been bank interfaced. For instance, out of 10877 WDC pushed SHGs 9439 are reserve funds joined, however just 2990 are credit connected. The linkages are basically packed in the areas West Champara and Gaya. The districts of Kaimur, Sheikhpura and Lekhiserai have fewer linkages.

CHAPTER 6

DATA ANALYSIS
There is More than 600 branches of micro finance institution working in Bihar. Microfinance companies could contribute in a big role in rural development in Bihar. The microfinance institutions could play a major role in rural development, alleviation of poverty in rural areas and generation of rural entrepreneurship through lending at soft rates.
7.1 Comparative Financial Overview of Bihar compare with India

Socio-economical Bihar India Percent Difference
Profile

Population 103 million , 1.15 billion 8.96 population of India in
0.103 Billion Bihar

Poverty ratio 42.56% 37.20% 5.36% more Poverty

Overall literacy rate 47.50% 65.20% 17.7% less Literacy Rate

SC population 15.70% 16.20% .50% Less SC compare to
India

ST population 0.90% 8.20% 9.30% Less ST compare to
India

Avg. land holding 0.75 ha 1.57 ha 0.82 ha less avg land
holding per person

Human development 0.367 0.472 .105 less HD Index

Infrastructure 91.31 100 8.69 Less ID Index
development index

*Source Reference census of India 2011with self analysis

From the above table we can see that as compared to the overall financial growth of Bihar is far lacking behind the Indian growth figure.

7.1 Income Comparative Graph

Data Source: Reserve Bank of India

' Bihar's investment cum credit ' deposit ratio is 37% vis-a-vis the National Average of 80%.

' Total deposits of all banks in Bihar in June 2010 were INR 996,360 million, the loan was 321,090 million, and the credit deposit ratio was 32.23%.
' The credit deposit ration has shown a steady increase w.e.f. 2008-09

7.2 Potential Microfinance Clients operating in Bihar

' Assumed annual growth rate of 1.63% p.a. during 2001-11 as per national average for India 1991-2001, All India census data 2011.

' Assuming five person per Households.

' Rural poverty ratio in rural Bihar is 42.1% for 2004-05 (Source: CSO, NSSO Survey Reports)

' Rural poverty ratio in urban Bihar is 34.6% for 2004-05 (Source: CSO, NSSO Survey Reports)

Table 7.2Bihar Opportunity Market for Microfinance:
Population 10,38,04,637
Male 5,41,85,347
Female 4,96,19,290
Literacy 5,43,90,254 Male 73.39%
Female 53.33%
Sex Ratio 916
(Females/Thousand
Males)

There are big opportunities in Bihar Market from data above, as big population & literacy rate is poor so lack of knowledge but need to uplift by doing small scale business & microfinance can play major role.

7.3 Microfinance Outreach in Bihar

Estimate of No. of Poor Households in Bihar (2011)

Population of Bihar in 2011* 103 million

Total no of Households** 20.61 million

Number of Rural Households (89.54% of
total) 18.46 million

Number of Urban Households (10.46% of
total) 2.15 million

No. of Rural BPL Households ( 42.1% of
rural population)*** 7.76 million

Urban BPL Households (34.6% of urban
population)**** 746,167

Total BPL Households 8.50 million

Source: NABARD data for March 2008. Note: Total BPL households estimated to be 7.67million in 2008.

' assuming all SHG members and MFI clients are BPL

' Source: SADHAN, the Microfinance Quick Report, 2008 & MFI Reports.


7.4 Credit Demand of Poor Households in Bihar and the Supply Gap

Demand

Credit requirement per poor HH per annum (Assumed)

(a) Rural Rs. 6,000

(b) Urban Rs. 10,000

Total Credit Demand for Rural BPL
households per annum Rs. 41,945 million

Total Credit Demand for Urban BPL
households per annum Rs. 6,730 million

Total Credit Demand for all BPL
households per annum Rs. 48,675 million

Supply

Estimated Annual credit supply from
Banks and MFIs during 2007-08* Rs. 2,128 million

Demand-Supply Gap 96%

Demand & Supply Gap is huge of 96%


CHAPTER 7
Key Strategies and Way Forward
The key strategies to fill gap the between credit delivery institution or microfinance institution and clients
8.1 Key Strategies for Financial Inclusion and Scaling up Financial Services
I. The coordinated promotion and provision of financial services through another supply channels ' SHGS and group based associations, MFIs, helpful structure and through a reach of differentiated items. This obliges the well coordination of singular exertion made by all the state level organizations towards the advancement of microfinance division.

II. Incubate and provides budgetary assets to the MFI industry to open an elective channel for the unmet credit needs of poor people. Empowering financiers and the private players to put resources into the state level Mfis in manifestation of value and giving on loaning trust backing to their prerequisite. This additionally requires a speculation to give specialized aid and limit building of the Mfis.

III. A committed methodology to attain government focuses of 100% fiscal consideration through consistent checking and super-vision of advancement. Distinguishing that money related foundation is an "open great", both the banks and the State government ought to put resources into making the budgetary base needed for access to monetary administrations by the whole gang. This could be as repaying capital ventures of banks/money related organizations in extension or extent to the extra customers secured from the disorderly area. This might make the expense of access moderate to both the financiers and the customers.

IV. A real push in SHG advancement alongside a period headed project for bank linkage of unlinked and naturally structured gatherings. This could be upheld through reinforcing and expanding after existing government programs, BRLP and WDC, in the investment the strengthening of ladies as a major aspect of a durable mission to empower them to assume responsibility of their lives.

V. Undertake a fight approach in regions underserved by microfinance for making SHGs of the poor and underestimated through accomplished Ngo/Shpis to guarantee money related get to and expand the effort of the division. The State need to take the activities to fortify the effectiveness of brokers, Shpis and different Shgs programs towards microfinance alongside the budgetary education program for the SHG parts and the microfinance customers in immature geological area.

VI. form and support organizations of animated Shgs as solid group foundations both to encourage stream of credit and to give other budgetary administrations, for example, investment funds and settlements. The SHG alliances could encourage microenterprise advancement as the more extensive improvement method.

VII. Innovate further to build and broaden the accessible microfinance items to blanket the reach of life cycle money related needs of poor people. An equivalent push ought to be given to enhance budgetary items and methodologies to meet other monetary administrations, for example, protection, seniority annuity and settlement necessities of microfinance customers. This additionally obliges creating models of microfinance for heading sub-areas with government and private orgs that will upgrade employments of poor people.

VIII. Development of institutional structures to sharpen and train bank staff and additionally the Mfis to permit smooth stream of credit speculation in microfinance area. This might be likewise backed by decently composed monetary items that will upgrade the limit of microfinance customers and com-munities to oppose the assaults of surge and different debacles.

IX. Insure more excellent transparency in microfinance operations and customer assurance through initiating a grievance redressal component for microfinance customer
8.2 Measures to be taken by the State and Collaborating Institutions and Agencies

' Establishment of State Level Coordination Committee for Microfinance (SLCCMF), conceivably to be gathered by Director, Institutional Finance and having representation from all stakeholders, for example, (WDC, BRLP), lead banks and MFIs. The council might have an overall characterized part to focalize and direction exercises of all stakeholders, included in microfinance administrations conveyance through diverse models and methodologies, including issues identified with rivalry and cover of exercises of distinctive organizations through self regulation and set of principles.
' Creation of Bihar Micro-finance Development Fund for supporting MFI/Shpis for growing micro-finance operation and capacity building of the human assets involves. This additionally incorporates the value speculation backing to the developing lo-cal MFIs. This ought to be supplemented by assets from NABARD and Financial Inclusion Funds (State Govt, NABARD, giver and private orgs

' Establishing a NBFC with the value in-vestment for major stakeholders (State Government, NABARD, Banks, Private Orgs and so on.) to give credit stream to developing group based microfinance foundation.
' Reviewing the usage of SGSY supports and evaluates lternative arrangements plans for allotment under different SHG-based livelihoods advancement projects (State Govt
' Formation of SHG Mission, with WDC or BRLP as lead agency and with thrust on women's participation and empowerment, along pattern of Orissa or Andhra Pradesh to direct and plan the development of SHGs and federation structures. (State Govt.)

' To increase number of SHGs at least at the rate of 30% per year to scale'up provision of financial services (BRLP, WDC, Banks, SHPIs, SGSY/Rural Development Deptt.)

' Complete stocktaking and quality assessment of SHGs formed by SHPIs/MFIs (including under SGSY scheme) with time-bound plan to address capacity gaps and facilitate bank linkage (SLCCMF)

' Provide positive environment for the smooth conduct of business of MFIs (local and multistate) operating in Bihar by addressing issues related to law and order, bureaucratic facilitation and interface with the formal banking system (State Govt.)

' Monitor and achieve banking system target of providing at least no frills savings accounts to each family in the State by 2012 (SLBC, Commercial Banks, RRBs, DCCBs)

' Explore products and institutional arrangements to promote savings and to augment the flow of financial resources for small borrowers through the cooperative system (Coop. banks, Cooperative deptt)

' Image-building to attract microfinance funders through dissemination of positive achievements and good practices in the State. (SLCCMF).

' Support to emerging MFIs through a State level dedicated annual allocation commitment from banks and private funders (SLCCMF, banks, and private agencies).

CONCLUSION

Broad range of microfinance services and administrations in Bihar is much behind the Indian picture as money related Socio-prudent Parameter like Poverty degree, Overall Literacy Rate, SC & ST Population, Avg. area hold, Human Development & framework list are low at the very least 20% on normal. Customers working in Bihar are insignificant in rate looking at rustic & Urban Household as 3.1% & 18.7% for BPL & Poor individually. Credit Demand supply Gap of 96% is disturbing circumstance for Mfis to arrive at there. Gigantic potential hole recently exist so just the exertions to fill those crevices. Win-Win circumstance might be made for beneficiary & administration supplier. Proficiency rate is extremely poor approx. 54%, accordingly MFI can help in a significant manner as individuals need to expand their wage just by doing little business to gain.

It is clear that the vision constitutes a remarkable level of venture and commitment from the different fragments of stakeholders to turn around the years of stagnation. There is significant idealism in the vision explanation towards bringing 80% of the BPL populace - from 18.62% at present - inside microfinance fold. This will blanket 6.55 million microfinance customers of which two-third will be underpinned SHG bank linkage project and one-third through developing state and multi state Mfis with an expected yearly credit stream of Rs. 20,000 million by 2013. On the other hand, the errand might be attained given the positive vitality of the State organization, regulating limit building establishment and trust to give credit stream to the developing Mfis and Shpis to accomplish the vision by 2013. The vision additionally indicates a new push in livelihoods advancement and the recharged enthusiasm of brokers in serving the poor not just as a necessity division prerequisite yet as a benefit producing demographic the reactant vicinity of all inclusive effective Mfis that have begun operations in Bihar. It is normal that given the qualities of the extensive variety of associations included, a regular reason will be attained that will prompt expanded wages and jobs open doors for the poor and defenseless populace of Biha

LIMITATION

Data are collected from secondary source so validity of the data depends on time frame.

SUGGESTIONS

1. Proper Regulation: The regulation was not a significant concern when the microfinance was in its beginning stage and distinct organizations were allowed to accumulate imaginative operational models. Then again, as the part finishes very nearly two decades of age with a high development trajectory, an empowering administrative environment that ensures enthusiasm of stakeholders and in addition advertises development is required.
2. Field Supervision: In addition to proper regulation of the microfinance sector, field visits might be embraced as a medium for checking the conditions on ground and launching curative movement if necessary. This will keep a scout the execution of ground staff of different Mfis and their recuperation hones. This will additionally urge MFIs to maintain fitting set of accepted rules and work all the more effectively. Be that as it may, the issue of plausibility and expense included in physical screening of this unlimited segment remains an issue in this respect.
3. Encourage rural penetration: It has been seen that in lieu of reducing the initial cost, MFIs are opening their branches in places which already have a few MFIs operating. Encouraging MFIs for opening new branches in areas of low microfinance penetration by providing financial assistance will increase the outreach of the microfinance in the state and check multiple lending. This will also increase rural penetration of microfinance in the state.
4. Complete range of Products: MFIs should provide complete range of products including credit, savings, remittance, financial advice and also non-financial services like training and support. As MFIs are acting as a substitute to banks in areas where people don't have access to banks, providing a complete range of products will enable the poor to avail all services.
5. Transparency of Interest rates: As it has been observed that, MFIs are employing different patterns of charging interest rates and a few are also charging additional charges and interest free deposits (a part of the loan amount is kept as deposit on which no interest is paid). All this make the pricing very confusing and hence the borrower feels incompetent in terms of bargaining power. So a common practice for charging interest should be followed by all MFIs so that it makes the sector more competitive and the beneficiary gets the freedom to compare different financial products before buying.
6. Technology to reduce Operating Cost: MFIs should use new technologies and IT tools & applications to reduce their operating costs. Though most NBFCs are adopting such cost cutting measures, which is clearly evident from the low cost per unit money lent (9%-10%) of such institutions. NGOs and Section 25 companies are having a very high value of cost per unit money lent i.e. 15-35 percent and hence such institutions should be encouraged to adopt cost-cutting measures to reduce their operating costs. Also initiatives like development of common MIS and other software for all MFIs can be taken to make the operation more transparent and efficient.
7. Alternative sources of Fund: In absence of adequate funds the growth and the reach of MFIs become restricted and to overcome this problem MFIs should look for other sources for funding their loan portfolio. Some of the ways through which MFIs can raise their fund are:
By getting converted to for-profit company i.e. NBFC: Without investment by outside investors, MFIs are limited to what they can borrow to a multiple of total profits and equity investment. To increase their borrowings further, MFIs need to raise their Equity through outside investors. The first and the most crucial step to receive equity investment are getting converted to for-profit NBFC. Along with the change in status the MFI should also develop strong board, a quality management information system (MIS) and obtain a credit rating to attract potential investors.
Portfolio Buyout: It is when banks or other institutions purchase the rights to future payment stream from a set of outstanding loans granted by MFIs. In such transactions MFIs are responsible for making up any loss in repayment up to a certain percentage of the portfolio and this clause is known as 'first loss default guarantee'. The above clause ensures that the MFI retains the correct incentive to collect these loans. To ensure security to the buying institution, MFIs are allowed to sell off as much of the outstanding portfolio as is financed by accumulated earnings or equity.
Securitization of Loans: This refers to a transaction in which the repayments from a set of microloans from one or more MFIs are packaged into a special purpose vehicle, from which tradable securities are issued. As the loans from multiple MFIs can be pooled together the risk gets diversified. Though securitization of loans and portfolio buyout are similar in many ways like first loss default guarantee clause, limit to the amount of loans that can be sold off etc. The major difference between the two is that securitizations require a rating from a credit rating agency and that it can be re-sold, which makes securitized loans attract more potential buyers. Also unlike portfolio buyout, there can be multiple buyers and sellers for each transaction in case of securitization of loans as compared to single buyer and single seller in portfolio buyout. Through securitization, MFIs can tap new sources of investments because fund of certain types like mutual funds, which are barred from directly investing in MFIs, can invest through securitized loan.

Source: Essay UK - http://ntechno.pro/free-essays/finance/origin-microfinance.php


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