Course objective

• This workshop course aims at enabling the

students to gain a clear understanding of
various policies, conceptual, and operational
issues involved in developing effective and
successful microfinance interventions
 MICROFINANCE
Definition, History and Products

Introduction
 OUTLINE
• Introduction
• What is Microfinance
• Where is it aimed at?
• Definition
• Clients of Microfinance
• Origin, History and Evolution of Microfinance
• Products by Microfinance
 MICRO FINANCE

• Business and
• Micro Entrepreneurs Educational loans
• Self-employed
• Savings
• Low Income populations
• Micro-insurances
• Remittances
• THEREFORE,
MICROFINANCE refers to the
provision of small amount of funds to people
or enterprises to enable them achieve their
goals.
 Taking an Example
Mrs. Bharti, 40 Years old
 Unemployed husband
 4 children
 No savings
 Good sewing Skills

 Mrs. Bharti decides to start a sewing business from

home to meet her ends.
 Therefore, she goes to the bank and requests loan.
 But to her disappointment her loan request is
REJECTED!

Reasons for rejection being-

 Lack of collateral and guarantors
 Communication gap
 Doubt of the bank of the repayment capacity
 High transaction cost of processing
 A whole complex of formalities
 Complex documentation
 Mrs. Bharti needs Rs. 1,000
2) Purchase of Sewing Machine
Starts with her Sewing Business

Daily benefits amount to Rs.

100

1) Visit of Mrs. Bharti to

the MFI
Meeting with the Loan Regular contact and 3) Weekly repayment of Rs
Officer follow up between 86
Convinced, received loan Remaining Rs 14 is used for
of the MFI and the buying inputs and
accessories
Rs. 1,000 (+30 % Interest client
rate)

4) Final Repayment 12
weeks later
(Demand for 2nd loan of
Rs. 1,500 to expand her
business)
 Examples of MFI’s
• Bandhan (Society and NBFC)

• Microcredit Foundation of India

• Asmitha Microfin Ltd.

• SKS Microfinance Private Limited

 MICROFINANCE DEFINED
Microfinance can be defined as the provision
of financial services to low income clients,
poor households both in urban and rural areas
who are generally not bankable.
• According to CGAP,
“Microfinance can be defined
as the supply of loans, savings and other basic
financial services.”
• According to ACCOIN, Microfinance is defined
as
“Banking and/or financial services targeted
to low- and moderate-income businesses or
households, including the provision of credit.”
 CLIENTS OF MICROFINANCE
Poor and low income people

Usually Self-employed and the unsalaried

Micro-entrepreneurs

Women- the majority of the clients

People close to the Poverty Line

 How does it help?

It provides a long-term increase in income and consumption of poor families.

Access to credit helps the poor to smooth cash flows and avoid periods where
access to food, clothing, shelter, or education is lost.

Credit make it easier to manage shocks like sickness of a wage earner, theft, or
natural disasters.

It provides support to Micro Enterprises .Thus booster support to

Entrepreneurship among the jobless people Plays an important role in Women
Empowerment, particularly in Developing countries like India.
 ORIGIN
Prof. Yunus saw that
• Even poor men and women needed loans
• They can also use funds in productive manner
and can REPAY
͞ Grameen Bank of Bangladesh along wit Prof.
Yunus became pioneers of Microfinance.
͞ They started and shaped the modern industry
of Microfinance.
• They set up financial institutions with a Social
mission. A SPIRIT OF
SUSTAINABILITY
• Listen to the needs and voices of poor and
catered to their financial needs.
 HISTORY AND EVOLUTION OF
MICROFINANCE
• THREE PHASES:-

SECOND PHASE: FINANCIAL SYSTEMS

THIRD
FIRSTPHASE: FINANCIAL
PHASE:SOCIAL INCLUSION
BHANKING
APPROACH
 PRIOR TO FORMALISED MICROFINANCE

• Before there was any kind of formal MFI’s,

Microfinance existed informally.
• It was through Traders and Moneylenders
(known as the Sahukars).
• Characterised by exorbitant rates of interest.
OUTCOMES OF SUCH PRACTICE-
 Hardships and impoverishment of the
borrowers.
 Debt trap.
 Bonded labor.
 Forced transfer of properties and land.
 Distress sale of crops and harvest
 FIRST PHASE
• In the 1960’s, India made the largest
intervention in the rural credit market.
• This phase was called the Social Banking Phase.
AIMED AT-
• Broadening the credit access for the poor and
marginalised people.
• And the people who had no access to formal
banking.
 FEATURES OF THE SOCIAL BANKING
PHASE
• Years 1960-1990 (about 3 decades)
• Nationalization of Commercial banks-
 14 commercial banks nationalized in 1969 and
8 commercial banks nationalized in 1980.
• Lead Bank Scheme initiated with district
plans.
• Rural banking network expanded:
 RRB’s setup in 1976.
 NABARD was formed in 1982
 Cooperative banking was structured and
developed.
 SIDBI was established.
• Extensive disbursement of subsidized credit.
 SECOND PHASE
• Known as the Financial Systems Approach
• Year 1990-2000
• Key Features-
a) NGO based MFI’s were developed. They provided
Microfinance products and services on not-for-
profit basis.
b) SHG Bank linkage programme initiated and
replicated.
c) Innovative credit lending mechanisms.
 THIRD PHASE
• Known as the Financial Inclusion
• Year- 2000 onwards
• Key Features:
a) Microfinance now seen as Business proposition
b) Getting Commercialized
c) Development of for-profit MFI’s like Non
Banking Financial Companes (NBFC’s) and Non
Banking Financial Institutions (NBFI’s).
d) NGO-MFIs being legitimized.
e) Customers’-centric/Client centric
microfinance products and services are given
importance.
f) Policy regulations have increased
 WHY ARE MICROFINANCE PRODUCTS
NEEDED?
According to Brett Mathew of Mathwood
Consulting Company. The microfinance
products are needed for:
a) Cost of burials, health care, replacement and
rehabilitation cost after a natural disaster,
b) Retirement (for self or parents), migration,
farm equipments, wells, home upgrade, self
insurance etc.
c)Irrigation, transportation, livestock, microenterprise,
home renovation, schooling and education etc.,
d) Food security, health treatment, festivals, social
obligations, emergencies etc.,
e) Sending money to family and home and away,
microenterprise’s working capital.
f) Meeting urgent family disasters like sickness, crop
failure, payoff money lenders etc.,
g) Housing, wells, irrigation systems, boats, motor
bikes etc.,
h) Microenterprise working capital, livestock, sewing
machine, bikes etc.
 MICROFINANCE PRODUCTS (TYPES)

Microsaving Microcredit Microinsurance

Remittance Pension
 MICROSAVING
• DEFINITION OF 'MICROSAVINGS'
A branch of microfinance, consisting of a small deposit
account offered to lower income families or individuals
as an incentive to store funds for future use.
Microsavings accounts work similar to a normal savings
account, however, are designed around smaller
amounts of money. The minimum balance
requirements are often waived, or very low, allowing
users to save small amounts of money and not be
charged for the service.
 Why is there a demand for Microsavings?

Due to:
• Irregularity of cash flows among the poor,
• Small amount available for saving at a time,
• Cushion against contingencies like illness,
calamities, death of family members
• Source of margin to take loan, as liquid assets,
• Future investments and
• Uncertainty in the provision of loan in the future
According to Stuart Rutherford, there are four types
of needs that compel poor to save. These are:
1) Life cycle needs: Weddings, childbirth, funerals,
education, old age and widowhood.
2) Personal Emergencies: Sickness, injury,
unemployment, theft or death.
3) Disasters: Natural disasters like fires, floods,
cyclones & Man-made events like wars or
bulldozing of events.
4) Investment opportunities: Expanding business,
purchasing land or equipment, renovation of
house.
 Advantages of Microsavings
Bridging the gap Protects the poor
between seasonal from the clutches
cashflow and daily of corrupt
expenditure. moneylenders.

Reduction of
Saving increases
unnecessary
Self-esteem
consumptions.
 MICROCREDIT
• An extremely small loan given to
impoverished people to help them become
self employed. 

Also known as “Micro lending” or “Micro

loan”.
 MICROCREDIT AIMED AT?
• Impoverished borrowers who typically
lack collateral, steady employment and a
verifiable credit history.
• Microcredit is widely used in developing
countries and is presented as having
"enormous potential as a tool for poverty
alleviation.”
 MICROINSURANCE

Microinsurance is the provision of insurance

products with very low and reasonable
premiums and low caps/coverage.
It is an economic instrument at the micro level
i.e. at Individual household level, village level
or regional level
 Features of Microinsurance
• Less transactions
• The clients are of low net worth
• Clients are involved in package design and
rationing of benefits.
 REMITTANCES
• Remittances are transfers of funds from
people in one place people in another.
• Usually across borders to friends and families.
• They are usually slow or a steady source of
funds.
Usually in two forms:

Money sent by
migrant workers to
family in home
country. Payment in cash, cheque
or electronic transfer.
 PRODUCTS OFFERED AS PER NEEDS

NEED PRODUCT
a) Cost of burials, health a) Various Insurance
care, replacement and
plans
rehabilitation cost after a
natural disaster,
b) Retirement (for self or
parents), migration, farm
equipments, wells, home
b) Pension Plan or long
upgrade, self insurance
etc. term deposits
c) Irrigation, transportation, c) Medium term deposit
livestock, microenterprise,
home renovation, schooling
and education etc.,
d) Food security, health
treatment, festivals, social d) Demand or Short-term
obligations, emergencies deposit
etc.,
e) Sending money to family and
home and away,
microenterprise’s working e) Fund transfers and
capital. Cheques
f) Meeting urgent family f) Emergency loans
disasters like sickness,
crop failure, payoff
money lenders etc.,
g) Housing, wells, irrigation
systems, boats, motor g) Longer term loans
bikes etc.,
h) Microenterprise working h) Short term loans
capital, livestock, sewing
machine, bikes etc.
 Pensions
• Pensions are a social security measure.
• Almost 28% of the salaried workforce and 340
to 393 unorganised sector workers are excluded
from it.
• Each client uses her/his own “micro-pension
prepaid card” to transmit her periodic micro-
savings for her old age directly to regulated
product providers such as UTI and NPS-Lite
(National Pension Scheme).
 Effects Micro Pension
• Security against old-age poverty, especially
women/mothers
• Improve living standards in retirement
including family
• Shift of resources from survival towards
investment;
• Through old-age income, older people play
supportive role infamily structure;
 Challenges of Micro Pension Scheme

• Collection contributions in safe & efficient way

• Secure responsible and productive investment
of contributions
• Paying benefits timely and correctly
• Building trust, improve pension awareness and
maintain effective communication
• Ensuring effective and reliable governance
THANK YOU
SUPPLY OF MICROFINANCE
 CONTENTS
Components of microfinance
Supply of microfinance
Non Institutional sources of finance
Strengths and Weaknesses of Money lender
Institutional sources of Finance
Supply Barriers in Institutional sources of
finance
 COMPONENTS OF MICROFINANCE

Intermediation in
Microfinance

Demand for Microfinance Supply of

Microfinance in India Microfinance

Regulation of
Microfinance
 SUPPLY OF MICROFINANCE
• It is concerned with the sources of supply of Microfinance.
• Sources are of two types.

Non-Institutional sources Institutional sources

NABARD, SIDBI,
Money lender
RMK

Commercial banks,
Friends, relatives Rural regional
and neighbors banks, cooperative
banks
 MONEY LENDER
• The village based Non institutional source of finance is
dominated by money lenders in India.
• In past , they have enjoyed monopoly in the supply of very
small finance to people in rural areas.
• Provision of Loans from money lenders is easy as the
money lenders have knowledge of economic conditions of
the borrower.
Friends , Relatives and Neighbors
• They provide microfinance products occasionally subjected
to their financial strength at a particular time.
• So this source is considered as a minor source of informal
credit.
 • Very low transition period:
Availability of credit in small
span of time (as and when
required).

Strengt • Customized credit: Money

h
lenders provide customized
microloans to the clients,
subjected to terms and
conditions.

• Less transaction cost : The

transaction cost of
Microcredit is very less as
compared to the formal
financial Institutions.
 • Limited to loan products: Non
Institutional sources can provide
loan products only.

• High interest rates : Moneylender

Weakness charge very high interest rates. Also

the interest rates are not uniform.

• Pressure of Moneylender : Often,

money lenders put onerous
conditions on the borrower. They
pressurize the borrower to transfer
the ownership of assets to them.
 INSTITUTIONAL SOURCES OF
MICROFINANCE

NABARD (National bank of Agriculture and Rural development)

• It was set up by Reserve Bank of India in 1982.
• The R.B.I’s functions of agriculture finance and Rural development
including the control of cooperative banking system was taken up by
NABARD from 1982 onward.
• About 90% of NABARD’s fund is channelized for Agriculture and Rural
development.
 SHORT TERM –To meet the production demand of
seasonal agricultural productions. It provides short term
finance to SCB’s and RRB’s for period of 12 months.
MEDIUM: It provides medium term loan to SCB’s which
NABARD varies from 3 to 5 years. Loans are meant for investments like
digging of tube well, purchase of power tillers or cultivators etc.

Long term: To state governments for contributing to share

capital of Cooperative credit Institutions.
• The credit from NABARD is not restricted to agriculture
only, but also includes loans for production and
Marketing activity of cottage and small-scale industries.
• Based on the demand for Microfinance ,in 1992,
NABARD launched a pilot project of self help group-
Bank linkage Programme.
• NABARD has developed a special fund called
“Microfinance Development fund” with an amount of
Rs 100 crores, which was basically meant for capacity
building of Microfinance institutions.
• NABARD has been engaged in lending to SHG’s under
Microfinance programmes.
 SELF HELP GROUP

• It is a village based financial intermediary committee consisting of 10-

20 men or women as its members.
• All the members make contributions to the committee on regular basis
and after some time when a huge capital is formed, the funds are either
lent to members or to rural villagers.
• SHG’s were linked with Banks through Bank Linkage programme.
Banks lend them money on regular basis.
• It is a nice modal in rural areas which reduces transaction cost.
 SIDBI(SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA)

• It is a subsidiary of IDBI , started its operations from April 2 ,1999, with the
objective of financial and Non financial services to “small-scale sectors”.
• It provides loan to MFI’s for capacity building, liquid management, equity
support and transforming NGO to NBFI’s. It also directly provide loans to
clients for Microenterprise development.
• SIDBI Foundation, a unit of SIDBI, identifies , nurtures and develops potential
MFI’s and establishes long-term partnership by providing credit support for
their microcredit initiatives.
• SIDBI foundation also provides Capacity building support to MFI’s/NGO’s to
expand their Microcredit operations, and to increase the organizational
efficacy.
RMK( RASHTRIYA MAHILA KOSH/ THE NATIONAL CREDIT FUND
FOR WOMEN)

• It is a Society, which was registered in 1992-1993 under society registration

Act of 1860.
• It provides a number of financial products, primarily credit products(meant for
women).It works as a wholesale agent in the provision of Microfinance.
• As on June 2008 , the important schemes of RMK were
• Loan promotion scheme
• Revolving Fund scheme
• Bulk lending scheme
• House loan
• Working capital loan scheme
• Family loan scheme
• Franchise scheme
 RRB’s(RURAL REGIONAL BANKS)
• The Rural financial credit system by RRBs was started in 1975 with six
RRBs spread over 17 branches covering 12 districts .
• RRBs provide both Agricultural as well as Non agricultural credit , but
Non agricultural credit is limited to rural development and Microenterprise
development .
• From the RRBs credit , the landless laborers, Artisans and micro
entrepreneurs are benefited at large.
COOPERATIVE BANKS
 They were designed to meet Rural financial demand in general and
Agricultural demand in particular.
 They provide short-term and medium-term credits.
 The cooperative banking system in India is a three tier structure.
 State Cooperative
Banks:
They finance CCBs
and if no CCBs then
PAC’s . The major
functions are to
guide, control,
organize and
supervise the
operations of CCBs.

Central cooperative Banks:

They finance member PACs and
mostly provide medium and short
term credits for Agriculture.

Primary Agricultural Credit cooperative:

They are organized and operate at the village level and act
as a direct link to Farmers. The membership of PACs
include 65% of village population.
 LAND DEVELOPMENT BANKS
• They provide long term loan for land development. The repayment period varies from 15 to 30 years.
• They have two tier structure.

• They operate at state level.

• They deals with farmers
State or Central Land directly or through primary
Development Banks. Land development banks

• They operate at local

Primary Land
level.
Development Banks
 STATE BANK OF INDIA

• SBI is associated with NGOs in extending Financial help since

1976.
• The other major functions of SBI in Rural Finance include-
1. Opening bank branches in remote areas.
2. Providing remittance services to SCBs.
3. Financing central land development banks.
4. Providing loans against Warehouse receipts.
 ICICI GROUP
• ICICI bank and Centre for Microfinance at Institute of Financial
Management and research work in collaboration for developing MFIs in
India.
• ICICI bank facilitates MFIs for provision of Microcredit, Micro saving,
Micro insurance and pension .

OBC (Oriental Bank of Commerce)

o It had disbursed about 6930 crores for Agriculture lending by march 2008.
o It had started various schemes for agricultural and Rural sector lending .
o It had opened 316 semi urban and 273 rural branches.
SUPPLY BARRIERS IN INSTITUTIONAL SOURCES
• Large collateral requirements: Formal financial institutes are
mostly engaged in collateral-based lending due to certain lending
risks(variable rainfall, pests & diseases, price fluctuations etc).
• Poor’s demand for very Micro-scale products : Poor are inclined
to take small loans for a short period, but the formal financial institutions
do not go for small loans as the cost of processing from banker’s side is
high.
• High transaction cost: Financial products from formal financial
Institutions incur high transaction cost due to their set of formalities and
processing policies.
• High transition Period: Transition period is high as most of these
formal financial institutions suffer from low strength, less extensive
outreach of branches.
• Non-customized repayment schedule: The
rural poor are mostly engaged in agriculture or other rural
business activities having irregular cash flow and are
broadly seasonal or periodical.
• Non-customized products: The demand of
microfinance products is varied in weaker section of society. For
example , a farmer require a loan of Rs4500 with monthly repayment
in installments whereas another farmer may need a loan of Rs 2500
with bimonthly repayment in installments. The formal financial
institutions generally do not entertain these types of customized
products.
 INTERMEDIARIES
• Intermediaries are basically the not-for-profit
institutions which have specialized lending capacities.
• They obtain capital in the form of equity and low
interest loans from variety of sources, including
foundations and other funders, to form a “lending pool”
• Then they serve as “ wholesalers” who process large
number of small loans and investments.
• Also intermediaries often develop expertise in a
particular field or region that foundations or funders
cannot afford to develop.
• Financial intermediation service providers
exist in:
Formal sector- this includes banks(public &
private commercial banks), RBs, postal savings
banks, NBFIs.
Semi-formal sector- NGOs, registered SHGs,
Multipurpose cooperatives etc.
Informal sector- money lenders, traders
and shop keepers
MICROFINANCE DISTRIBUTION MODELS

• Bank/Donor-to-Microfinance Clients: under

this model, banks directly involved disburse
the microfinance products to the clients.
• Bank/Donor-to-intermediary-to-Microfinance
Clients: the banks give fund in terms of loans
to different intermediaries and later on these
intermediaries provide financial products to
clients. This model is extensively used in India.
• Bank/Donor-to-primary intermediary-to-
secondary intermediary-to- Microfinance
Clients: Under this model, banks or donors
provide fund to an intermediary and this
intermediary and this intermediary transfers
this fund to another intermediary; and this
intermediary provide financial products to
the clients. In this model, the primary
intermediary mostly works as a supervising
and monitoring organization or a nodal org.
whereas the actual microfinance work is
done by the secondary intermediary.
Regulations and Supervision of Microfinance
Intermediaries
 Definitions

For any microfinance operation, it is necessary to scan and

understand the legal-financial framework of India.

Regulation of microfinance refers to a set of rules developed by

the Government which are imposed on microfinance.

Supervision refers to the process of enforcing compliance with

the regulation rules .
• Regulation of
microfinance
• Supervision
 MFIs have to maintain compliance with the
prudential regulatory norms:

 To protect the interests of the small savers

 To ensure proper terms of credit

 To ensure financial discipline

 To ensure proper institutional reporting system and disclosures

 NGO-MFIs
 Most Indian MFIs are NGOs

 NGOs are not regulated by prudential regulations. Hence they are

not considered mainstream financial institutions.

 If an NGO-MFI increases its operational capacity, it has to register

under either a cooperative or a company under the section 8
Companies Act of India.

 An MFI will have to register itself with the RBI if it is providing saving
services, and the savings operations exceeds Rs. 25 lakhs.
 Non-Banking Financial Institutions
 Registered under Companies Act 1956

 NBFIs are the only form of MFIs which fall under RBI regulations.

 An MFI must have initial fund of Rs. 2 Crore to operate as an NBFI.

 They have legal rights for saving mobilisations but are subjected to
the assets adequacy and prudential norms.

 RBI conducts both onsite and offsite supervision of NBFI-MFIs.

 Mutually Aided Cooperated Societies

 They have legal sanctions to work as MFIs.

 Regulated by Registrar of Cooperative societies and State

Government.

 Permitted to raise share and mobilise deposits.

 MACS( mutually aided cooperative societies ) are not regulated by

RBI.
 Mutually Aided Cooperated Societies
(..contd)
States in which MACS function are:

Andhra Pradesh Chhattisgarh

Jharkhand Orissa
Bihar Karnataka
Jammu & Kashmir Uttaranchal
Madhya Pradesh
 THE ANDHRA PRADESH MICROFINANCE / INSTITUTIONS
(REGULATION OF MONEY LENDING) ACT, 2010

The act purported to ‘protect women SHG from the

exploitation’ by MFIs in the state. The Act rolls out
the following:
i) All MFIs operating in Andhra Pradesh shall within
30 days apply for registration before the registering
authority.
ii) Members of one SHG shall not be the member of
more than one SHG.
iii) All loans by MFIs have to be without collateral.
iv)Maximum amount of interest was stipulated, the
aggregate interest not to exceed the principal amount.
v) MFIs must display the rates of interest in their premises.
vi) No MFI shall extend further loan to an SHG where the
SHG has an outstanding loan from a bank.
vii) MFI shall not deploy agents for recovery.
viii) Repayments have to be made at the office of the
Gram Panchayat or at the designated public place.
ix) Loan recoveries have to be made only in monthly
installments.
x) Carrying business without registration and including a
coercive recovery method would attract penalty by way of
imprisonment.
 MFIs as Banks

 Such banks must get registered under RBI.

 Initial capital requirement of such a bank is Rs. 100-300

crores.
 Local Area Banks
 Initial capital requirement is Rs. 5 crores.

 The liquidity requirements and interest rates are the same as those for
RRBs.

 Norms regarding income recognition, asset classification and provisioning

of LABs are applicable as other commercial banks.
Category of Legal Structure Ownership Regulatory Status Financial Products
MFI
NGO-MFIs Non-profit societies, Private sector Not regulated by -Retailing credit
Foundation, Trust or Sec entities banking authority -Insurance
8 Co. Act -Payment transfer

NBFC/I Limited liability company Private sector Regulated by -Retailing credit

investors or banking authority -Mobilising savings
shareholders -Payment transfer
-Pension, PF

MACS Cooperative Societies Members Not regulated by -Retailing credit

banking authority -Mobilising savings

PSBs Government Government Not regulated by -Savings products

banking authority -Money transfer
services

Rural banks Limited liability company Private sector Regulated by -Savings, credit
investors or banking authority products
shareholders -Money transfer
services

Private sector Limited liability company Private sector Regulated by -Wholesaling, retailing
CBs investors or banking authority credit
shareholders -Mobilising savings
-Payment transfer
-Pension, PF
 MICROFINANCE AND RURAL
FINANCIAL SERVICES
RURAL FINANCE: financial services that are used
in rural areas by people of all income levels are
referred to as rural finance. Some of the rural
financial products are :
• Production loans for agriculture,
microenterprises and microbusiness
development.
• Insurance products like agriculture insurance,
health insurance, general insurance, life
insurance etc.
• Money transfer services for ruralites
• Pension and provident funds for ruralites
• And various consumption loans.

The population of rural India is more than 800

million and 75% of ruralites are dependent on
agriculture for their livelihood.
About 300 million people live below the
poverty line(BPL)
• Because of the realization of importance of
the rural finance system, the government of
india has taken many steps in the past by
developing an extensive banking network
with nearly 1,00,000 bank branches and
about twice as many as cooperative credit
outlets in rural areas.
• But it was found that the commercial bank
credit to rural areas is hardly 10% of total
bank credit.
• Agricultural finance falls under “Rural
Finance”
 RURAL FINANCIAL SERVICES
Financial services for all purposes and from diverse sources
tailored to the needs of poor people in rural areas.
Rural financial products include:
• Credit for production and consumption and credit
guarantee
• Insurance for crops, assets and life insurance
• Infrastructure and public goods finance
• Pension and provident fund
• Saving services including deposit insurances.
 Needs for Rural finance
• Buying of agricultural inputs like seeds, fertilizers, plant
protection chemicals
• To buy assets such as plough, bullocks, bullock carts, potters’
wheel etc.
• Consumption purposes in case of failing of crop enterprise
• For educating their children
• For medical purposes
• To start a new enterprise
• For construction and renovation of house
• To meet the unforeseen situations like flood, famine, cyclone
etc.
 CONSTRAINTS OF RURAL FINANCIAL
SERVICES IN INDIA
• Dispersed demand for rural financial services
• High risks of agricultural lending as agricultural
enterprise are highly prone to disasters and
natural calamities.
• High transaction costs
• Lack of proper and well-defined collaterals
available against lending in rural areas.
MICROFINANCE CREDIT LENDING MODELS

Various models for disbursement of

microfinance products and services are being
used by microfinance institutions through out
the world. Some of popular models are:
• Association model
• Community banking model
• Cooperative model
• Credit union model
• Grameen Joint liability group model
• Self-help group model
• Rotating saving and credit association model
• Village banking model