MCM608 CU -Sem II - Mcom -Microfinance Management (3)-converted

Answers: a. Series I b. First 1. c. Series A a d. None of these a 2. 3. a 4. c 5.c SUGGESTED READINGS • Branch, Brian & Janette Klaehn. (2002). Striking the Balance in Microfinance: A Practical Guide to Mobilizing Savings. Washington: PACT Publications. • Dowla, Asif & Dipal Barua. (2006). The Poor Always Pay Back: The Grameen II Story. Bloomfield, Connecticut: Kumarian Press Inc. • Hirschland, Madeline. (2005). Savings Services for the Poor: An Operational Guide. Bloomfield CT: Kumarian Press Inc. • Sapovadia, Vrajlal K., (2006). Micro Finance: The Pillars of a Tool to Socio-Economic Development. New Delhi: Prentice Hall of India. • Ledgerwood, Joanna and Victoria (2006). Transforming Microfinance Institutions: Providing Full Financial Services to the Poor. World Bank, 2006. • Rutherford, Stuart. (2000). The Poor and Their Money. New Delhi: Oxford University Press. 148 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT -12 MEASURING SOCIAL IMPACT Le arn Structure ing Ob CU IDOL SELF LEARNING MATERIAL (SLM) jec tiv es Int rod uct ion Me asu rin g soc ial an d we lfar e im pac t of mi cro fin anc e Li mit s an d bia ses of suc h me asu re 149

me nts Me asu re me nts sug ges t ab out mi cro fin anc e an d its im pac t an d fut ure Su m ma ry Ke yw ord s Le arn ing Ac tivi ty Un it En d Qu esti ons 150 CU IDOL SELF LEARNING MATERIAL (SLM)

Su gg est ed Re adi ngs LEARNING OBJECTIVES After studying this unit, you will be able to: • Describe measuring social and welfare impact of microfinance • State the limits and biases of such measurements • Explain the measurements suggestions about microfinance and its impact and future INTRODUCTION Analysis of the poverty emphasis of microfinance is almost exclusively focused on the direct impacts on microfinance clients. The Imp-A CI programme emphasizes the need to also consider the 'wider impacts' achieved through non-client beneficiaries of microfinance. To fully understand and achieve the social impacts to which microfinance aspires wider impacts need to be assessed and programmes designed to achieve these outcomes. This volume introduces methodologies. In most cases developed by practitioners, which measure these wider or 'social' impacts and use the results as a point of departure for understanding what institutional and policy interventions are required to make them more pro-poor. The principal wider impacts discussed are health, community governance, postwar reconstruction, labour and finance markets and. in relation to Bolivia and Indonesia, the economy as a whole. We represent research into such wide impacts as a public good which is beneficial for all microfinance institutions (MFb)-in particular for their public relations·-,md for the poverty impact of the sector as a whole. but which the individual institutions typically do not have the resources to assess. This indicates a clear role for donors. 151 CU IDOL SELF LEARNING MATERIAL (SLM)

MEASURING SOCIAL AND WELFARE IMPACT OF MICROFINANCE Some important new initiatives, however, have explored social aspects with a new definition of social performance that includes impact as the end-goal, but specifically unpacks the steps and practices taken to get there. The focus shifts from proving an end result to managing and reporting on those steps that are likely to lead to positive social outcomes. Social performance is seen not only as a result but as the process of achieving that result—and this can be reported on. The two main initiatives behind this shift are the Imp-Act program and the CERISE Social Performance Indicators Initiative (SPII).The Imp-Act program set out to establish what MFIs could do to improve (and prove) their impact. Social performance was defined as the effective translation of an institution’s mission into practice. This definition emphasizes that social performance is not only the end result (the impact) but a deliberate process of getting there. It reflects the concept of an impact pathway (derived from the conceptual framework for impact assessment research), anchored in mission and leading to change, but contains several steps to work through so as to achieve change systematically (i.e., ‘put into practice’). The impact pathway can be represented as an arrow, with the main shaft representing the MFI’s governance, management, and strategic systems—the process; the arrow head represents the results: reaching target clients, meeting clients’ needs in line with their capacities, and ultimately achieving impact (see figure 1). The arrow points in one direction, but there is an iterative flow of information about the results (represented by the dotted line in the figure) feeding back into decision making. This enables an MFI to keep track of whether it is achieving its social mission and objectives, and contributes to an overall process of social performance management. The CERISE approach adopts the same MFI-centered definition of social performance, but adds objective concepts of social value (improving the lives of poor and excluded clients and their families and widening the range of opportunities for communities) and social responsibility (to clients, communities, staff). These may not be explicitly spelled out in an MFI’s objectives, but are assumed to be implicit and to have broad applicability, whatever the MFI’s stated goals Social Value in Microfinance The social value of microfinance relates to: •i mproving the lives of poor and excluded clients and their families; and • w idening the range of opportunities for communities. To create this value, the social objectives of an MFI may include: •s 152 CU IDOL SELF LEARNING MATERIAL (SLM)

erving an increasing number of the poor (and people excluded from financial and other services) sustainably, and expanding and deepening outreach to poorer people; •i mproving the quality and appropriateness of financial services available to the target clients through a systematic assessment of their specific needs; • d elivering such services in a cost-effective way that offers low fees and fair interest rates on loans and deposits; •c reating benefits for the clients of microfinance, their families, and communities, that relate to social capital and social links, assets, reduction in vulnerability, employment creation, income, access to services, and fulfillment of basic needs; •i mproving the social responsibility of the MFI towards its employees, its clients, and the community it serves; and •m onitoring and acting upon unintended negative side-effects of microfinance, such as over- indebtedness and multiple loans. LIMITS AND BIASES OF SUCH MEASUREMENTS Limits of Micro finance Measurement Harsh repayment criteria In the absence of the legit working protocol and compliances, Microfinance Companies could adopt a harsh repayment approach that someone would not prefer in the state of the financial crisis. Easy debt never comes with relaxed conditions, and that is something true with microfinance companies as well. Since these companies work under strict compliances, they could manipulate their customer for repayment unethically. Small Loan amount Unlike mainstream financial banks, Microfinance Companies offers a smaller loan amount. Since these banks don’t ask for collateral against the credit, the disbursement of the large loan amount is practically impossible in their case. 153 CU IDOL SELF LEARNING MATERIAL (SLM)

High-interest rate Another problem with Microfinance Companies is that they were unable to render low-interest based loans. This is because they don’t follow traditional banks’ footprint, where the accumulation of funds is easy. Plus, they have to borrow money from these banks to execute appropriately and allocate some part of it for risk management. Hence operating cost per transaction is quite high for them despite the high volume of transactions per day. Unlike banks, the microfinance institution accumulates funds through private equity to render financial services. This primarily implies that these firms are under relentless pressure to create more profit for their investor, consequently forcing them to crank up the interest rate. Biases of measurement of microfinance Microfinance literature includes many studies on the effects of microfinance on female customers. Little knowledge exists, however, on whether bias towards women is good business for MFIs. The study uses a global dataset of 379 MFIs in 73 countries to investigate what characterizes MFIs that have a gender bias and how this bias affects various aspects of financial performance. Results indicate that gender bias: Is associated with group lending methodologies, international orientation, female leadership and non- commercial legal status; Is significantly associated with lower portfolio-at-risk and smaller loans; Does not significantly affect overall profitability measures. These findings suggest that, from a financial perspective, focusing on women has positive and negative implications. Women repay better, thereby lowering MFIs' risk and increasing profitability. But MFIs that focus on women usually distribute smaller loans, increasing operational costs. Therefore, MFIs with a female focus have, on average, similar overall profitability measures. MEASUREMENTS SUGGEST ABOUT MICROFINANCE AND ITS IMPACT AND FUTURE In this collection, then we pursue the Ford Foundation's 'objective of seeking to understand and internalize processes by which microfinance influences social well-being, but with a focus on social or wider impacts which go beyond the immediate client, and on methodologies which may enable these impacts to be more accurately measured. In some cases (income. health, poverty), attempts to measure the impact in question have already been made in the literature. But as far as we are aware. In many ways. the results of these enquiries into wider impact give grounds for encouragement. 154 CU IDOL SELF LEARNING MATERIAL (SLM)

Halder and Mosley. Mosley and Rock, anu Velasco and Marconi, this issue. in particular. produce evidence of indirect impacts of microfinance on poverty. These operate through the following mechanisms: • Institutional inspiration (Halder and Mosley, this issue)-the innovative lGVGD scheme of financial services for the ultra-poor in Bangladesh (food aid, then a combination of mandatory savings and training in a low-input enterprise, then a small loan to support that enterprise) has provided ideas at no cost to other MFIs in Bangladesh and elsewhere wishing also to focus on the ultra-poor: •E ncouragement of participation in community solidarity networks and political activities & social spillovers – This can take many forms. Olejarova et (II. (this issue) examine, in Russia and eastern Europe, the process by which mutual support between microfinance clients-which may or may not originate in trust groups of loan recipients-can extend outside the group of clients in terms of both membership and function, so that, for example, a group formed to receive loans finds itself also campaigning collectively for better public services or fighting local-level corruption - in the process benefiting many who are not microfinance clients. It is also possible for microfinance services which have a protection function, for example savings and insurance, to stabilize income at the community level, and the beneficiaries from this will be not just clients. but all investors who face a more stable level of demand (see for example Mosley, 2003); •D erived demand and other economic spillovers (Mosley and Rock, this issue)-labour market impacts-specifically the hiring of poor employees by microfinance clients who are generally above the poverty line -add an important 'multiplier' to direct impacts mediated through clients, whose size depends on the propensity of loan assisted firms to take on low-income labour; •P rovision of public goods in particular counter-cyclical influence (Velasco and Marconi, this issue). A few microfinance institutions-in Bolivia. mainly those using an 'integrated' model of microfinance service provision-have been able to assist micro enterprises to maintain an increased level of output and investment through the recession, and ill this way to lead the macro economy out of recession and provide a buffer against the continuing instabilities in the global economy. This is the 'widest impact' of all, and has potentially significant implications for finance industries as well as for regulators and lending institutions; but it appears, for reasons explained in Marconi and Velasco's essay, to vary between country cases--countries with a stronger savings and manufacturing base, and tougher political defenses against would-be defaulters, such as Indonesia, would appear to be in a better position for their micro finance sectors to provide a counter-cyclical impulse. But there are institutional design factors at work as well, and for philanthropic MFIs one of the pleasantest ironies of this volume will he that in the recent 155 CU IDOL SELF LEARNING MATERIAL (SLM)

Bolivian economic crisis, it is the financial institutions most driven by a naked profit motive-the consumer-credit houses-which have perished, and those motivated to live by a law beyond that of the market (in other words, to maximize 'wider impacts’)-the village banks-which have prospered. SUMMARY •T he first and most obvious action point from these essays is that if we are to understand wider impact and, therefore. possibilities for more effective action by microfinance against poverty, a mechanism for incentivizing MFIs to be involved in assessments of such external effects is needed. That this will be difficult is indicated by Khalili, who writes bluntly that even conventional impact assessments (which examine only effects experienced by clients, are much cheaper) are seen as 'donor-driven and useless from the point of view of practitioners'. A fortiori, the market will not produce assessments of social impact, because they are not profitable to any individual. And yet, we argue, such assessments are absolutely essential if any microfinance institution is to understand or publicize, or learn from. its social impact or if any sponsor is to properly understand the possibilities and comparative advantages or different instruments in the fight against poverty. Are these assessments just a classical 'public good’? Valuable to all but beyond the means of any individual institution, only to be produced by large charitable not-for-profit organizations such as the World Bank and the Ford Foundation? Encouragingly the range of lion-profit organizations which can wish to produce or commission such assessments is expanding, and now includes many Southern not-for- profit organizations such as BRAC (the author or co-author of three studies in this collection). In addition, in many environments in both North and South the not-for-profit sector is growing at the expense of the commercial sector, and so the question becomes how to persuade larger parts of the voluntary sector to produce assessments such as this on a regular basis, so that they convert from one-off exercises into a process of social impact monitoring. In some places there is evidence of this beginning to happen, often through the agency of networks of voluntary sector organizations. One place this is happening is Bolivia, and the article by Velasco and Marconi. In this issue, is the product of a co-authorship between the director of one such network (FINRURAL) and the director of a highly successful local MFI (ProMujer). In the end. progress in this area depends on NGOs being convinced that producing public goods or this kind is a useful way of advancing their corporate objectives. A bottleneck for MFIs to undertake impact assessments on a regular basis is lack of research capacities. Developing such capacities requires both commitments on the part of the organization’s and long-term investments of resources. As many MFIs are simply not resourced enough to make such an investment. the donors have a definite role to play in supporting the provision or this sectoral (if not global) public good. BRAC in Bangladesh, for 156 CU IDOL SELF LEARNING MATERIAL (SLM)

example. has been investing in developing its research capacities since its inception in the early 1 970s. One innovative funding mechanism it followed it by earmarking a certain proportion (2 to 4 per cent depending on the size of the project) of its budget for research (Strom, 2(00). •A second important lesson is that complimentary (ire crucial, and that the size of wider social impacts is often determined by a crucial trait of institutional design or government policy. Two examples: (I) the poverty reduction impact of microfinance depends on the propensity or loan-assisted firms to take on low-income labour (the example of Uganda is illustrated in Mosley and Rock, this issue). which depends on wages and transactions costs in labour markets, which depend on complementary government policies such as infrastructure and smallholder agriculture. (2) the extraordinary growth and diversification of the microfinance and ~mall business sector in Bolivia in the 1990s would not have been possible without the proactive efforts of the regulatory authority, the Superintendencies de Bancos. in enabling non-profit MFTs to convert themselves into deposit-taking institutions (Johnson. in this issue, also Rhyne, 2002). KEYWORDS •I mpact Level: - The systemic level at which change can be quantified or qualified implying causality. •I mpact/Target Market: - This category investigates the effects of programmatic activity on specified client populations. It also includes how to design programs for a specific client group. •I ndigenous Populations: - Focusing on the unique micro financial needs of First Nations, Native Americans and Aboriginal populations. •I ndividual Lending: - Single-client lending where repayment relies solely on the individual. LEARNING ACTIVITY 1. What is the impact of Microfinance on living standards, empowerment and poverty alleviation of the poor people? 157 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Why does microfinance focus on women? What are thereasons for promoting women's participation in microfinance programs? UNIT END QUESTIONS 1. State the limits of measurement of microfinance. 2. Discuss Welfare impact of microfinance. 3. Analyse social impact of microfinance. 4. List impact of measurement about microfinance. 5. Discuss the biases of measurements of microfinance. B. Multiple Choice Questions It It based 1. Which of the following statements related to Micro Finance System is wrong? High None if a. provides micro credit having scope for small savings and remittance of funds b. on the principle of livelihood creation c. volume of low transactions done through system d. wrong 2. Loans to poor people by banks have many limitations including lack of security and high operating cost. So to help them which type of finance system developed? a. Ponzi schemes Micro Money b. Money finance system c. laundering schemes d. tempering finance 158 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Which of the following are loans of very small amounts given to low income groups or poor household? a. Simple Credit Rural Micro b. No Frills credit c. Credit d. loan 4. Micro credit or micro finance is a novel approach to bank with the poor. In this approach bank credit is extended to the poor through which of the following? a. Self Help Group Anganwa Co- b. RBI dees c. operative Credit societies d. 5. What is NOT a source of difficulty in the estimation of the impact of microfinance projects? a. We do not observe what would have happened in absence of the microfinance project b. Participan ts systematically doffer from non-participants in their propensity to benefit from micro- finance c. Microfina nce programs are not located randomly, they are often located in disfavoured areas d. Microfina nce programs are often targeted to women Answer 2. b 3. c 4. a 5. d 1. d 159 CU IDOL SELF LEARNING MATERIAL (SLM)

SUGGESTED READINGS • Branch, Brian & Janette Klaehn. (2002). Striking the Balance in Microfinance: A Practical Guide to Mobilizing Savings. Washington: PACT Publications. • Dowla, Asif & Dipal Barua. (2006). The Poor Always Pay Back: The Grameen II Story. Bloomfield, Connecticut: Kumarian Press Inc. • Hirschland, Madeline. (2005). Savings Services for the Poor: An Operational Guide. Bloomfield CT: Kumarian Press Inc. • Sapovadia, Vrajlal K., (2006). Micro Finance: The Pillars of a Tool to Socio-Economic Development. New Delhi: Prentice Hall of India. • Ledgerwood, Joanna and Victoria (2006). Transforming Microfinance Institutions: Providing Full Financial Services to the Poor. World Bank, 2006. • Rutherford, Stuart. (2000). The Poor and Their Money. New Delhi: Oxford University Press. 160 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT -13 MFI MICRO INSURANCE Le arn Structure ing Ob CU IDOL SELF LEARNING MATERIAL (SLM) jec tiv es Int rod uct ion Ch ara cte rist ics Ch all en ges Be nef its of ma kin g mi cro fin anc ea ma nd ato ry pro du ct Su 161

m ma ry Ke yw ord s Le arn ing Ac tivi ty Un it En d Qu esti ons Su gg est ed Re adi ngs LEARNING OBJECTIVES After studying this unit, you will be able to: Explain State the • Give the term micro insurance in detail List the • characteristics of micro insurance • details of the benefits of making microfinance a mandatory product • challenges in micro insurance INTRODUCTION Micro insurance can boost resources for the rural poor, governments, and private sector. The entire economy gains as the insurance industry matures further, as well. There is robust need for micro 162 CU IDOL SELF LEARNING MATERIAL (SLM)

insurance in India's poverty reduction strategy. With insurance, the vulnerable can prepare for an adverse event before it occurs, instead of being paralyzed by shocks afterwards. Micro insurance also increases the likelihood that the poor eat well, have health access, and send their children to school, since they would not have to save as much for emergencies. Potential clients would typically earn around $2 a day or even less. Six key areas, which need to be addressed to propel micro-insurance is - 163 CU IDOL SELF LEARNING MATERIAL (SLM)

1) D emand and supply P P 2) D roduct design P R 3) ricing P 4) F istribution and outreach M B 5) S rocedure P D 6) “ egulation. CHARACTERISTICS 1. hysically accessible 2.I ntellectually accessible: Simple, easy to understand policy document 3. inancially accessible: Small premiums that accommodate irregular cash flows 4. ake the intangible tangible 5. roadly inclusive, with few if any exclusions 6. mall sums insured, often for short terms Small sums insured, often for short terms 7. re-underwritten, community or group pricing 8. istributed through alternative channels: aggregators 9. A t” t th ti t “Agent” aggregators may manage the entire customer relationship, premium 164 CU IDOL SELF LEARNING MATERIAL (SLM)

collection, claims payment O D 10. B ften integrated with another financial transaction 11. esigned to minimize claims rejections 12. ottom of the pyramid business model: small margins, large volumes CHALLENGES 1. D istribution that reaches large numbers of low income households, and has their trust income households, and has their trust 2.I nvolving the market in designing simple products 3. E ducating the market 4. M aking insurance tangible to all, and beneficial to those who do not claim 5. M aximizing efficiencies. 6. R eaching huge numbers of people and keep them Reaching huge numbers of people, and keep them 7. E ncouraging claims! 8. D eveloping appropriate institutional arrangements that are viable and provide value to the poor BENEFITS OF MAKING MICROFINANCE A MANDATORY PRODUCT 1.I t allows people to better provide for their families. Microfinance allows for an added level of resiliency in the developing world. Even when households are able to work their way out of poverty, it often takes just one adverse event to send them right 165 CU IDOL SELF LEARNING MATERIAL (SLM)

back into it. It’s often a health care issue that causes a return to poverty. By allowing entrepreneurs to become more resilient through their own efforts at their own business, it gives them the opportunity to make it through times of economic difficulty. Most of the households that take advantage of the microfinance offers that are available in developing countries live in what would be considered “abject poverty.” This is defined as living on $1.25 per day or less – though some definitions extend this amount to $2 per day or more. About 80% of that amount goes to the purchase or creation of food resources. By offering microfinance products that can be repaid with that remaining 20%, more households have the opportunity to expand their current opportunities so that more income accumulation may occur. 2.I t gives people access to credit. Muhammad Yunus, who is often credited as the modern father of microfinance, once gave $27 to women out of his own pocket because he saw how the cycle of debt affected their work crafting bamboo chairs. Most banks will not extend loans to someone without credit or collateral because of the risks involved in doing so, yet those in poverty do not have any credit or collateral. By extending microfinance opportunities, people have access to small amounts of credit, which can then stop poverty at a rapid pace. Yunus has always believed that credit is a fundamental human right. There are certainly some financial institutions which may disagree with his assessment. Yet without credit, it can be difficult, if not impossible for someone in poverty, to pursue an idea that could bring about a giant payday one day. Microfinance makes that pursuit possible. 3.I t serves those who are often overlooked in society. In many developing nations, the primary recipient of microloans tends to be women. Up to 95% of some loan products are extended by microfinance institutions are given to women. Those with disabilities, those who are unemployed, and even those who simply beg to meet their basic needs are also recipients of microfinance products that can help them take control of their own lives. Women are key figures in leadership roles in business, even in the developed world. Catalyst has reported that companies with female board directors are able to obtain returns that are up to 66% better in returns on invested capital and 42% better in terms of sales returns than companies with male board members only. Women also develop others more frequently when it comes to entrepreneurial roles. This comes from coaching, feedback, or investments. Even in the developed world, women helping women is an 166 CU IDOL SELF LEARNING MATERIAL (SLM)

economic force that poverty can’t stop. 4.I t offers a better overall loan repayment rate than traditional banking products. When people are empowered, they are more likely to avoid defaulting on a loan. Women are also statistically more likely to repay a loan than men are, which is another reason why women are targeted in the microfinance world. There’s also the fact that for many who receive a microloan, it is their only real chance to get themselves out of poverty, so they’re not going to mess things up. Zenger Folkman published a survey regarding ratings of high integrity and honesty in leadership roles that was separated by gender. The mean percentile of women displaying these traits was 55%, while for men, it was just 48%. In business, the bottom line is this: integrity matters. Microfinance institutions have recognized this and approached women because of this. As a side effect of this approach, many developing countries are taking a new look at what role women should play in society. Instead of treating a woman as a second-class citizen, or the “barefoot in the kitchen and pregnant” attitude that has been prevalent in the past, the success of women in bring their households out of poverty is evidence that proves women not only have an initiative to get things done, but they produce consistent results. For these reasons, microfinance institutions see total repayment rates of higher than 98%, though there can be several accounts that are overdue at any given time. 5.I t provides families with an opportunity to provide an education to their children. Children who are living in poverty are more likely to have missed school days or to not even be enrolled in school at all. This is because the majority of families who live in poverty are working in the agricultural sector. The families need the children to be working and productive so their financial needs can be met. By receiving microfinancing products, there is less of a threat of going without funding, and that means more opportunities for children to stay in school. This is especially important for families with girls. When girls receive just 8 years of a formal education, they are four times less likely to become married young. They are less likely to have a teen pregnancy. In return, this makes girls more likely to finish schooling and then either obtain a fair-paying job or go onto a further educational opportunity. 6.I t creates the possibility of future investments. The problem with poverty is that it is a cycle that perpetuates itself. When there is a lack of money, there is a lack of food. When there is a lack of clean water, there is a lack of sanitary living conditions. When people are suffering from malnutrition, they are less likely to work. A lack of 167 CU IDOL SELF LEARNING MATERIAL (SLM)

sanitation creates the potential of illness that prevents working days. Microfinance changes this by making more money available. When basic needs are met, families can then invest into better wells, better sanitation, and afford the time it may take to access the health care they need. As these basic needs are met, it also means that there are fewer interruptions to the routine. People can stay more productive. Kids can stay in school more consistently. Better healthcare can be obtained. This creates a lower average family size because there are more guarantees of survival in place. And when that happens, the possibility of future investments will occur because there is more confidence in being able to meet basic needs. 7.I t is a sustainable process. How much risk is there with a $100 loan? Some investors might pay that for a decent dinner somewhere. Yet $100 could be enough for an entrepreneur in a developing country to pull themselves out of poverty. This small level of working capital is sustainable because it’s essentially a forgettable amount. If there is a default on that money, the interest and high repayment rates of other microloans will make up for it. Then repayments are reinvested into communities so that the benefits of microfinance can be continually enhanced. Each repayment becomes the foundation of another potential loan. This is why many microfinance products have relatively high interest rates. Some institutions may charge the equivalent of a 20% APR, but others have interest rates which exceed 800%. Although interest is high, recipients are invested into making these products work because virtually all institutions put repayments back into new loans that target the most vulnerable households in the developing world. 8.I t can create real jobs. Microfinance is also able to let entrepreneurs in developing countries be able to create new employment opportunities for others. With more people able to work and earn an income, the rest of the local economy also benefits because there are more revenues available to move through local businesses and service providers. It’s not just the entrepreneurial level that benefits from job creation through microfinance. Grameen Bank in Bangladesh employs over 21,000 people and their primary financial products are related to microfinance. That’s tens of thousands of jobs that are created by the industry with the sole purpose of being able to drag people up and out of poverty. 168 CU IDOL SELF LEARNING MATERIAL (SLM)

9.I t encourages people to save. Microloans are an important component of microfinance, but so is saving money. When people have their basic needs met, the natural inclination is for them to save the leftover earnings for a future emergency. This creates the potential for more investments and ultimately even more income for those who are in the developing world. Some microfinance institutions have seen an extraordinary number of savings occur when products are extended. The Unit Desai of Bank Rakyat Indonesia counts 28 million savers to just 3 million microloan borrowers. Now saving isn’t always seen, especially from borrowers, but this is part of the expected microfinance process. Small loans make small financial improvements for households living in poverty. The difference between making $1.90 per day and $2.30 per day is not much in reality, but by definition, that amount takes someone out of extreme poverty. Instead of big improvements, microfinance allows for small improvements. When enough of those improvements occur, then there is a safe place for people to store their income thanks to this industry. 10. I t reduces stress. There is a valid argument to be made that some microloans go to cover household expenses instead of business needs. Some are using these loans to pay bills or purchase food. It’s true. Yet without this product available, there wouldn’t be an ability to pay bills or purchase food. So even though it may not always be used for business purposes, it still serves a purpose by reducing stress. Stress cannot be underestimated when it comes to poverty. Even in the developing world, the stresses of poverty can be overwhelming. It causes people to seek out coping mechanisms that are not always healthy. And, in some cases, it may even cause families to break apart. Sometimes childbirth is a coping mechanism for poverty simply because an extra set of hands means an extra chance for income. By reducing these stress markers, households can focus on the job at hand to provide for themselves, even if that means net income levels for that family may not rise in the near future. 11. I t allows people to feel like they matter. The feeling of receiving a credit product for the first time cannot be ignored. It’s a feeling like you’ve made it. That you really are somebody because you’ve been trusted with credit. This feeling applies to everyone, even in the developed world. When a person feels like they matter, it changes who they are at a core level. Instead of focusing on how they can just survive, then begin to look for ways to 169 CU IDOL SELF LEARNING MATERIAL (SLM)

thrive. This brings us back to the stress that poverty creates on people. People, when they are approved for a microloan for the first time, will often have a reaction that is similar to Steve Martin’s reaction in The Jerk when he discovered his name in the phone book. And this is why Yunus feels that credit is a fundamental right. Without credit, survival is often the best possible outcome. With credit, there is hope that anything can be possible. 12. I t offers significant economic gains even if income levels remain the same. The gains from participation in a microfinance program including access to better nutrition, higher levels of consumption, and consumption smoothing. There is also an unmeasurable effect which occurs when women are empowered to do something in their society when they might not normally be allowed to do so. As spending occurs, these benefits also extend outward to those who may not be participating in the program so that the entire community benefits. The most important weakness of microfinance is that the effects of raising income levels for the poor can often be questionable. Although it raises the possibility of income accumulation and savings, microfinance products also raise the possibility of creating a further indebtedness that may potentially extend the cycles of poverty for an infinite period of time. Although some may look at consumption in a negative view, those who have gone without for so long will see improved consumption as a sign that things are getting better. Consumption smoothing allows an entire community to realize the benefits that microfinance can provide. It isn’t always about the money. Sometimes economic success comes from stability. SUMMARY •T he term \"microinsurance” typically refers to insurance services offered primarily to clients with low income and limited access to mainstream insurance services and other means of effectively coping with risk. •M ore precisely, microinsurance is a means of protecting low income people against specific risks in exchange for a regular payment of premiums whose amount is proportional to the likelihood and cost of the relevant risk. The principal distinction from traditional insurance is in the targeting of low income people, which leads to distinct characteristics and objectives, including addressing the particular risks of low income people, affordability and inclusiveness, simplicity and clarity in documentation, accessible processes, and building trust 170 CU IDOL SELF LEARNING MATERIAL (SLM)

among target clients. •L ike most other schemes of assistance provided by various State governments and Union government the implementation of Self Help Groups has not been free from problem and hurdles. In spite of numerous problems pertaining to identification, training and financing of beneficiaries, the scheme has made much headway. Most of the beneficiaries, who availed of financial assistance under the Self-Help Groups have succeeded in employing themselves and generating reasonably adequate returns out of their activities. It is an undisputed fact that a little money, guidance, support and practical knowledge would embolden women, financially and mentally. It would lead to the opening of new avenue and improve the quality of their life. •S elf Help Groups are about people coming together with others who are affected by a particular issue to support each other and to work together to change the disadvantage affecting them. Self Help Groups are self-governed, peer-controlled small and informal association of the poor, usually from socially and economically homogeneous families, who are organized for savings and credit activities. •I n the meetings they discuss general issues and plan solutions, share information, make efforts to improve their health and literacy skills. Self Help Groups are not charity groups they are simply society based groups. They are controlled by the people who are leading the groups. Group members are not volunteers. Although the work is usually unpaid, members work to change their own situation and support is mutual. Self Help Groups build on the strength of their members. Self Help Groups are playing an important role in the transfer of technology to user group population. It has been found by the members of Self-Help Groups that they offer them organizational base, large resources and access to modern technology leading to employment and income generation. •S elf Help Groups are playing a crucial role in harmonizing the society and strengthening rural economy; hence they must avail themselves of training programmes and should manufacture diversified quality products that are of high quality. Self Help Groups are expected to be one of the major programmes of poverty alleviation in India with full participation from the formal banking system and without any interference from the government. However, considering the magnitude of poverty, the outreach of the programme needs to be strengthened and enhanced. •T 171 CU IDOL SELF LEARNING MATERIAL (SLM)

he present study revealed that the socio-economic conditions derived from the members on the activities of Self Help Groups are at a satisfactory level. Further, the Social Welfare Department and Rural Development and Panchayat Raj Department of Government of Tamil Nadu, Non-Governmental Organizations, Banks, Financial Institutions, Entrepreneurial Training Centre and Social Workers might help the members of Self-Help Groups by educating them in all ways and providing more opportunities by relaxing the rigid rules. •F inally there is a need for high level review committee on Self Help Groups and its functions. Such an independent committee must be set up to study Self Help Groups based programmes, in order to assess the extent to which these programmes address the women empowerment. It must recommend changes related to the framework, approach and design of Self Help Groups programmes, as well as changes that might be required in the major policy and changes to have an impact in the alleviation of poverty. KEYWORDS • Lending Rate: - Lending Rate is the bank rate that usually meets the short and medium term financing needs of the private sector. This rate is normally differentiated according to creditworthiness of borrowers and objectives of financing. • Leverage: - Using long-term debt to secure funds for an organization. In the social investment world, often refers to financial participation by other private, public or individual sources. • Liabilities , Total Liabilities: - Total value of financial claims on a firm's assets. Equals total assets minus net worth. • Limited Liability: - Limitation of shareholders' losses to the amount invested. • Limited Recourse: - Rights only to specifically stipulated assets to satisfy an unpaid debt. • Line of Credit: - Agreement by a bank that a company may borrow at any time up to an established limit. LEARNING ACTIVITY 1. Write a short note on Micro Insurance 172 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Illustrate advantages of micro insurance UNIT END QUESTIONS A. Descriptive Questions 1. State the characteristics of micro insurance. 2. Describe the challenges faced by micro insurance. 3. Explain the benefits of making microfinance a mandatory product. 4. State who offers a better overall loan repayment rate than traditional banking products? 5. Discuss how micro insurance offers significant economic gains even if income levels remain the same? B. Multiple Choice Questions (MCQs) Micro 1. True insurance provides small premiums that accommodate irregular cash flows False a. b. 2. What do we call the money charged for the insurance coverage? a. Premium b. Policy Lapse c. Morbidity risk d. Package Policy 3. When two or more distinct insurance policies combined into a single contract, it is known as a. CMO b. Package Policy 173 CU IDOL SELF LEARNING MATERIAL (SLM)

c. Mortgage Insurance d. Micro Insurance 4. If a person experience illness, injury, or other physical or psychological impairment, whether temporary or permanent, then it is which type of risk? a. Morbidity Risk b. Preferred Risk c. Standard Risk d. None of these 5. If a general or life insurance policy with a sum assured of Rs. 50000 or less, then it denotes which type of insurance category? a. Mortgage Insurance b. Micro Insurance c. Multi-Peril Insurance d. Non-admitted Insurance Answer 1. a 2.a 3. b 4. a 5. b SUGGESTED READINGS • Branch, Brian & Janette Klaehn. (2002). Striking the Balance in Microfinance: A Practical Guide to Mobilizing Savings. Washington: PACT Publications. • Dowla, Asif & Dipal Barua. (2006). The Poor Always Pay Back: The Grameen II Story. Bloomfield, Connecticut: Kumarian Press Inc. • Hirschlan d, Madeline. (2005). Savings Services for the Poor: An Operational Guide. Bloomfield CT: Kumarian Press Inc. • Sapovadi a, Vrajlal K., (2006). Micro Finance: The Pillars of a Tool to Socio-Economic Development. New Delhi: Prentice Hall of India. 174 CU IDOL SELF LEARNING MATERIAL (SLM)

• Edgewoo d, Joanna and Victoria (2006). Transforming Microfinance Institutions: Providing Full Financial Services to the Poor. World Bank, 2006. • Rutherfor d, Stuart. (2000). The Poor and Their Money. New Delhi: Oxford University Press. 175 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT -14 MFI COMMERCIALIZATION Le arn Structure ing Ob CU IDOL SELF LEARNING MATERIAL (SLM) jec tiv es Int rod uct ion Po siti ve an d ne gat ive eff ect s of M FIs Co m me rci ali zin g Ne gat ive eff ect s Po siti 176

ve eff ect s Ne t im pac t of co m me rci al ba nks ent eri ng the Mi cro fin anc e ma rke t Su m ma ry Ke yw ord s Le arn ing Ac tivi ty Un it En d Qu esti 177 CU IDOL SELF LEARNING MATERIAL (SLM)

ons Su gg est ed Re adi ngs LEARNING OBJECTIVES After studying this unit, you will be able to: • Describe MFI commercialization • State the positive & negative effects of MFIs Commercializing • Explain the net impact of commercial banks entering the Microfinance market INTRODUCTION The topic of commercialization has been hotly debated, largely because it raises fundamental questions about whether the dual social and financial missions of microfinance can coexist. It has become clear in recent years that not only can these two priorities coexist, but when done right, they are mutually reinforcing, creating a healthier long-term business model for both clients and investors. This is not to say it is easy. Many MFIs Grameen Foundation partners with – particularly those that are for-profit entities with strong social missions – work hard at maintaining a strong focus on both social and financial goals. What is interesting, however, is that that some publicly-traded U.S. companies appear more committed to and more convinced of the need for mission-focused business than many in microfinance, an industry that has received billions of dollars of subsidized funds over the decades. Why is it — after years of talking just of scale and not of clients, of crises from India to Morocco, of governments stepping in because the industry has failed to self-regulate – that there still 178 CU IDOL SELF LEARNING MATERIAL (SLM)

debate around whether social and financial goals are mutually reinforcing? PT Ruma, a micro franchise-based social enterprise Grameen Foundation helped found in Indonesia, is an example of a business that has built social goals into its incorporating documents. Ruma’s articles of association require that its social goals be met before shareholders receive any financial dividend payouts. This innovative approach ensures that the social bottom line does not get shorter shrift in a “commercialized” entity and has supported, rather than hindered, Ruma’s ability to raise investment capital. Capital raising presents another challenge for many MFIs, since the way an institution funds itself can drive very different behaviors, priorities, and business models. For example, commercial lenders do not typically seek to influence a borrower’s direction and strategy; most often they simply want to be repaid on time at a pre-determined rate of interest. Strategic equity investors, on the other hand, often expect to have a seat at the table advising on the direction of the institution and, as such, have the potential to alter the behavior of management or the strategic priorities of the institution. If investors’ goals are focused on their own short-term financial returns, it may drive decisions that conflict with an institution’s ability to meet its social goals – in other words, to put clients first. Grameen Koota (GK), a long-time Grameen Foundation partner in India with a deep social mission, has grappled with this balance. GK’s ability to scale has been largely funded over the years by local commercial banks, an effort we have supported through our Growth Guarantee program. However, when it comes to securing strategic equity investors, GK expressed concern that taking on more commercially-minded equity investors might force it to place profits ahead of mission, for example, by pushing it away from the more difficult-to-reach clients who cost more to serve. GK has managed this by securing a balanced mix of both social and commercial investors, and in doing so, being extremely clear about its plans (target segment, mission, how their business will evolve), so that investors know upfront what they are “buying” and do not expect GK to shift course after their investment. This balanced approach has allowed GK to continue to focus on achieving robust social and financial results. Grameen Bank, of course, offers one of the earliest and longest-standing visions for microfinance as a business that puts mission first and views profits as a means, not an end – and is a strong example of a local, deposit-driven model. As the microfinance industry grapples with the very real challenges of how to shift from years of over-focus on institutional growth at the expense of clients to a deeper understanding of what clients need and want, there are lessons to be taken from the private sector, where at least among certain segments, it has long been understood that a successful business approach requires that your clients thrive. 179 CU IDOL SELF LEARNING MATERIAL (SLM)

POSITIVE AND NEGATIVE EFFECTS OF MFIS COMMERCIALIZING Negative Effects The main reasons given by bankers in large commercial banks to not enter the market of microfinance are the risk of default, high costs, and socio-economic and cultural barriers. They also face some internal constraints such as (see Baydas, Graham and Valenzuela, 1998; Barlet, 2003): i. Market knowledge: commercial banks lack an understanding of the microfinance market and its clientele, and often dismiss this segment as both too risky and too expensive. Even if a bank recognizes that microfinance can be profitable, the resulting portfolio size may be viewed as too small relative to the level of effort required to manage a microfinance operation ii. Organizational structure: commercial banks find it difficult to integrate microfinance within a larger bank culture and structure that is not geared toward a high volume, small loan size business. ii. Financial methodology: most commercial banks lack the financial methodologies to reach and retain low-income clients who require small amounts of capital. iv. Human resources: microenterprise credit requires staff who are comfortable working in the neighborhoods where clients live and work, and who must be highly productive in order to succeed. Monetary incentive systems are often used to spark such productivity. These requirements of microfinance are often incompatible with the human resources profile and policies of commercial banks. v. Cost-effectiveness: traditional bank mechanisms and overhead structures make it difficult for banks to minimize processing costs, increase staff productivity, and rapidly expand microfinance loan portfolios. vi. The policy environment: in countries with interest rate ceilings and heavy government intervention, banks will be prevented from even contemplating microfinance (Rhyne, 2003). Positive Effects Despite these constraints, commercial banks have several organizational and structural features that can lend themselves to successful microfinance operations: i. Large commercial banks often have an extensive network of branches, frequently covering all major cities in a country. ii. They have well-established internal controls and administrative and accounting systems to keep track of large numbers of transactions. 180 CU IDOL SELF LEARNING MATERIAL (SLM)

ii. Banks that have been in the market for a long time are well known to the public and have a recognized brand. In many cases the brand carries a high degree of trust. iv. The ability to offer loans, deposits, and other financial products make them attractive to microfinance clients. NET IMPACT OF COMMERCIAL BANKS ENTERING THE MICROFINANCE MARKET Banks and financial institutions have been entering the microfinance market in increasing numbers over the past years. This phenomenon (known as downscaling), together with that of upgrading, is resulting in a growing number of formal regulated institutions partially or totally moving into MF. It is necessary to analyze what drives a traditional banker to engage in MF in order to fully understand why downscaling has developed so much worldwide. There are several factors that motivate the bank to start making microloans. These factors are related both to the bank’s internal organization and to the market in which this bank operates. However, the main incentive is basically related to the fact that profits are in line with the risks incurred. Growing competition in markets traditionally served by banks —e.g., loans to big companies, small and medium-sized businesses and consumers— along with the resulting fall in banks’ returns has encouraged the search for new market niches. In countries with no experience in MF, there exists an unattended market segment which may be viewed by banks as a potential source of rapid growth and positive returns. The first products generally developed by institutions entering MF are microloans. However, as the business progresses, institutions start offering a broader range of products. The possibility of cross- selling is another positive aspect that commercial banks take into account when deciding to enter this sector. Commercial banks can offer their clients a range of products, including banking services, means of payment, money transfer services and insurance. Major banks have adapted their structure (contacts with insurance providers, branches abroad for fund transfers, ATM networks across the country) precisely for the delivery of these products. Entering a new sector enables banks to diversify their loan portfolio, focusing on a population segment previously unattended by them. By making loans to thousands of small borrowers, the microlending portfolio itself achieves substantial diversification in terms of number of clients served, although the level of diversification by activity and geographical area is usually low. Commercial banks can overcome this obstacle thanks to their branch networks across the major cities in the country. In addition, the performance of the micro lending portfolio may have low correlations with traditional bank business lines due to the very different nature of the clients and activities. Similarly, having a sector specialized in MF may help commercial banks improve their public image, as caring for the most disadvantaged social sectors is welcomed by clients and society in general. 181 CU IDOL SELF LEARNING MATERIAL (SLM)

The IADB points to the existence of underutilized capacity in some banks as one of the reasons for them to enter MF: excess liquidity or underutilized branches or information systems can reduce costs and encourage banks to get into micro lending. Another reason for entering this field is the availability of free or cheap donor technical assistance. Many case studies show cooperation agreements between banks and international MF support networks, in which the latter provide training to institutions that have recently begun to operate in the field of MF. Regardless of the commercial reasons encouraging banks to enter MF, policies imposed by some governments, aimed at contributing to the development of the MF sector, have driven or even compelled the financial system to provide loans to low-income sectors. The decision of commercial banks to enter MF is also affected by external factors. In this sense, the most effective way for governments to encourage commercial banks to become involved in microfinance is to ensure an appropriate regulatory and prudential framework. The elements of an optimal non-restrictive policy context identified by literature are: • s ound macroeconomic policies and basic infrastructure to ensure a growing economy; • a growing range of financial products; • M inimal restrictions to profitable lending, particularly no interest rate caps. • e nhanced ability to establish a small commercial bank which can focus on this sector; • A ppropriate prudential regulations for this market including capital adequacy ratios and asset quality indicators. Having all these elements in place will not necessarily guarantee that commercial banks will start microfinance lending. However, there certainly won’t be external constraints to start the activity. Competitive advantages for commercial banks entry into MF • E xtensive network of branches. • T echnology infrastructure: ATMs, MIS, among others. •P eople with skills in areas such as information technology, marketing and legal management who 182 CU IDOL SELF LEARNING MATERIAL (SLM)

can support microfinance operations. M A • L arket presence and brand recognition. H • L ccess to low-cost funds through deposit-taking. L • C ower operating cost structure. L Disadvantages for commercial banks entry into MF • igher operating costs. • ack of knowledge of the microfinance market. •I mplementation of credit methodologies inappropriate for the MF market. • abor-intensive nature of microenterprise credit as the antithesis of the banking sector drive toward automation. • onservative corporate culture contrary to MF. • ack of human resources who are comfortable working with lower-income social sectors. SUMMARY •T here is room for a variety of approaches to commercialization across the microfinance industry, and how an organization engages with this trend will depend on its own mission and objectives. At Grameen Foundation, we believe in prioritizing the mission and purpose and with profits acting in service of that mission, and that overall, this approach is a win-win scenario, creating stronger institutions that put the benefit of their clients front and center thus ensuring these institutions generate healthy social and financial returns over the long term. •S o in summary, the news regarding commercialization is good. Minimum standards are being set and widely recognized that will enable investors to screen out the most unscrupulous 183 CU IDOL SELF LEARNING MATERIAL (SLM)

operations and reduce if not eliminate the likelihood of the “return of usurers” in the guise of MFIs. Commercial microfinance has matured to the point that it can accommodate and put to good use different models, which we can take advantage of in order to better align investor, management and staff objectives. •M icrofinance emerged in the 1990s to become a real industry around the world, composed of a wide variety of institutions that providing financial services to people who are excluded from the traditional banking system. With the spectacular success of microfinance, a growing number of commercial banks have entered this new market, motivated on the one hand by the growing competition in the banking sector and on the other hand, by the pressure of some governments. However, if some banks choose the direct way to enter in microfinance “downscaling”, others prefer to play the card of prudence by building partnerships with microfinance institutions (MFIs). Microfinance activities can pose different risks from those related to traditional banking activities. This paper aims to explore entry strategies by commercial banks in microfinance and take the keys of success to make microfinance a profitable part of its business. •I n countries where there is a minimum of confidence between the population and commercial banks, it may be considered the direct entry of banks into microfinance by developing their retail operations to achieve a “micro-level”. To do this, they create an internal microfinance unit, a specialized financial institution or a microfinance service company. None of these strategies are inherently better than another, and there is no universal recipe for penetrate the market of poor or vulnerable people. The choice of an operative mode depends on internal and external factors. Otherwise, the banks may enter in microfinance indirectly by doing partnership relations with the MFIs. The best form of partnership between the Bank and MFI depends largely on the development degree of the MFI. Thus the first form of partnership which is the institutional partnership will be more indicate for an MFI “start-up” because it has the advantage of giving the MFI from the know-how of banks that may intervene as an initiator, member of the steering committee of the project or even supervisor. •T he second form of partnership which is the technical partnership seems more appropriate in the next phase of the MFI development. To continue growing in a balanced and sustainable manner, the MFI can indeed make the economy of a capacity building and of a requirement of professionalization of its activities. It is in this framework that the technical partnership can be beneficial to the MFI. •T his one might strengthen its human resources through training including banking techniques 184 CU IDOL SELF LEARNING MATERIAL (SLM)

provided by the partner bank. The IMF will also benefit from the know-how of the bank’s implementation of control procedures and internal and external audits. The third form of partnership which is financial partnership will help the MFI to get its autonomy. •I ndeed, services such as securing surplus liquidity or refinancing possibilities of the MFI that can offer the partner bank in this partnership seem to be essential to the functioning of the MFI towards the road to maturity. In this partnership the bank appears to be indispensable to the proper functioning of the IMF to the road to maturity. •F inally, this analysis reveals that the different strategies of commercial banks entry in microfinance are certainly evolving. Choosing the strategy that fits both the bank and the circumstances at the outset is an important factor in future success. Each approach has its particular rationale, risk profile, success factors, and costs. Once microfinance operations are under way, banks must constantly balance three pillars to achieve the expected success: i. H igh volume of operations, which is achieved by reaching thousands of clients, each with numerous, small and short-term transactions. ii. H igh quality client service, which is delivered to meet the socio-economic needs of clients often living in the informal economy and traditionally marginalized from formal financial institutions. iii. R isk management systems managed by trained people and customized to the high volume of operations and informal nature of the clients. KEYWORDS • Microcredit: - A part of the field of microfinance, microcredit is the provision of credit services to low-income entrepreneurs. Microcredit can also refer to the actualmicroloan. • Microenterprise: - Impact of credit/enterprise interventions on specific microenterprises regarding productivity, use of technology, sustainability, success rates, income levels, sale. • Microentrepreneur: - Owner/ proprietor of a microenterprise. LEARNING ACTIVITY 1. Write short note on MFI Commercialization 185 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Explain the relation of commercial banks & MFI UNIT END QUESTIONS A. Descriptive Questions 1. Describe the positive effects of MFIs Commercializing. Discuss Analyse 2. State the the negative effects of MFIs Commercializing. Evaluate 3. net impact of commercial banks entering the Microfinance market. 4. competitive advantages for commercial banks entry into MF. 5. the disadvantages for commercial banks entry into MF. B. Multiple Choice Questions (MCQs) 1. RBI has recently opened a separate category of non-banking financial companies for micro finance institutions, namely, NBFC-MFI under its control to remove the ambiguity over regulation of MFIs. Under the guidelines issued on 2 Dec 2011, an NBFC-MFI should have minimum net owned funds of a. Rs. 3 crore b. Rs. 4 crore c. Rs. 5 crore d. Rs. 6 crore 2. As per the guidelines issued by RBI, all NBFC-MFIs should maintain an aggregate margin cap of not more than a. 8 per cent b. 8 per cent c. 10 per cent d. 12 per cent 186 CU IDOL SELF LEARNING MATERIAL (SLM)

3. The tenure of the loan issued by NBFC-MFI to the borrower should not be less than 24 months for loan amount in excess of a. Rs. 15,000 b. Rs. 20,000 c. Rs. 25,000 d. Rs. 30,000 4. What is the role of MUDRA under PMMY Loans? a. MUDRA is a direct lending Institution and lends to small /micro units entrepreneurs directly for PMMY b. Acts as a Refinance Agency and refinances to all banks, NBFCs, MFIs for onward lending to customers under different categories of PMMY loans, as per need of the customer c. MUDRA is regulator of banks d. None of these 5. What are the Interest rates of the PMMY loans extended by banks, NBFCs, MFIs to the borrowers? a. Reasonable rates decided by lending banks, NBFCs, MFIs that should fall within the overall RBI Guidelines b. The rates as prescribed by MUDRA c. Uniform rates as stipulated by the RBI d. None of these Answer 1. c 2. d 3.a 4. b 5. a SUGGESTED READINGS • Branch, Brian & Janette Klaehn. (2002). Striking the Balance in Microfinance: A Practical Guide to Mobilizing Savings. Washington: PACT Publications. • Dowla, Asif & Dipal Barua. (2006). The Poor Always Pay Back: The Grameen II Story. Bloomfield, Connecticut: Kumarian Press Inc. 187 CU IDOL SELF LEARNING MATERIAL (SLM)

• Hirschland, Madeline. (2005). Savings Services for the Poor: An Operational Guide. Bloomfield CT: Kumarian Press Inc. • Sapovadia, Vrajlal K., (2006). Micro Finance: The Pillars of a Tool to Socio-Economic Development. New Delhi: Prentice Hall of India. • Ledgerwood, Joanna and Victoria (2006). Transforming Microfinance Institutions: Providing Full Financial Services to the Poor. World Bank, 2006. • Rutherford, Stuart. (2000). The Poor and Their Money. New Delhi: Oxford University Press. 188 CU IDOL SELF LEARNING MATERIAL (SLM)