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Population (millions) |
1,048.3 |
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Gross domestic savings (% of GDP) |
24.0% |
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% Population under $2/day (PPP) |
80%, 470 million <$1/day |
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Size of informal sector |
36 percent |
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Regulated microfinance institutions |
Commercial Banks, Regional Rural Banks, Cooperative Banks, NBFIs |
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Non-regulated sources of microfinance |
Cooperative Societies, NGOs, non-profit (Section 25 companies) |
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Predominant informal finance mechanisms (ROSCAs, tontines, etc.) |
Self-help groups |
General Approach to Regulating
Based on the Comparative Database on Microfinance Regulation by the IRIS Center of the University of Maryland
BANKS
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Commercial Banks |
Local Area Banks |
Regional Rural Banks |
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Definition or description of institution |
Commercial banks that meet minimum capital requirements that make them eligible for short-term lending from the Reserve Bank |
Private sector commercial banks operating in rural areas, which do not meet the minimum capital requirements for scheduled commercial banks |
State-sponsored, regionally-based, rural-oriented banks for rural development, particularly through marginalized farmers and small enterprises |
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Guidelines and restrictions on financial services |
Permitted: Deposits, credit, dealing in securities, letters of credit, foreign exchange, dealing in stocks and bonds, insurance, dealing in property connected with secure claims.
Prohibited: Buying, selling, or trading in goods |
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Permitted: Deposits, credit, one or more of the following: dealing in securities, letters of credit, foreign exchange, dealing in stocks and bonds, insurance, dealing in property connected with secure claims.
Prohibited: Buying, selling, or trading in goods |
NBFIs
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Non-Bank Financial Companies |
All-India Financial Institutions |
Primary Dealers |
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Definition or description of institution |
Non-bank institutions that engage in: financing other entities, purchasing government securities, and other business. Not institutions whose primary business is agricultural, industrial, or involves the purchase of goods or provision of services |
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Guidelines and restrictions on financial services |
Permitted: Lending; hire-purchase or leasing, deposit mobilization permitted only if rated by an approved credit rating agency, and only time deposits of 1-5 years are permitted. In addition, most deposits are allowed only in the province where the NBFC is registered.
Prohibited: Generally, MFI NBFCs may not provide microinsurance or fund transfers |
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Cooperatives/Credit Unions
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Primary (Urban) Coop Banks |
State & Central Coop Banks |
State & Primary Coop Agriculture and Rural Development Banks |
Primary Agricultural Credit Societies (PACS) |
Manually Aided Coop Societies (MACS) |
Self-Help Groups |
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Definition or description of institution |
A primary credit society other than a "primary agricultural credit society" whose primary business is banking, does not admit other cooperative societies as members, and has paid-up capital and reserves of at least US$ 2257.8 |
Cooperative banks engaged in short-term lending operations at the state and district levels, offering rural short-term cooperative banking services |
Cooperative banks engaged in long-term lending operations at the state and local levels, offering rural long-term cooperative banking services |
A cooperative society primarily focused on providing financial assistance for agricultural activities, and whose bylaws prohibit other cooperative societies from becoming members |
Member-controlled cooperatives without government share capital contributions, government influence in MACS' administration is limited |
A cooperative society – different than a PACS -- that is: (i) primarily focused on banking business; (ii) has paid-up share capital and reserves of less than US$ 2257.8 (INR 100,000); (iii) and whose bylaws prohibit other cooperative societies from becoming members |
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Guidelines and restrictions on financial services |
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Permitted: Deposit mobilization, lending, insurance, housing |
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Non-profit Institutions
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NGO-MFIs |
Non-Profit Companies |
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Definition or description of institution |
Nonprofit organizations devoted to charity, science, art, education, or similar activities |
Nonprofit organizations established as limited liability companies, which must reinvest all profits and cannot distribute dividends |
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Guidelines and restrictions on financial services |
Permitted: Lending, microinsurance as an agent on behalf of insurance companies
Prohibited: Deposit-taking |
Permitted: Lending
Prohibited: Deposit-taking |
Daily Deposit Plan, Monthly Deposit Plan by Vivekananda Sevakendra O Sishu Uddyon (VSSU) (612 KB, PDF)
Summarized from: "A Review of Commitment Savings Products in Developing Countries', 2003
By: Nava, Ashraf, Nathalie Gons, Dean S. Karlan, and Wesley Yin
VSSU is an NGO based in West Bengal, India that served approximately 6,990 clients in 2002. VSSU's main products are contract savings plans with regular daily or monthly deposit amounts. The Daily Deposit Plan is the most popular account, with regular daily deposits collected in fixed amounts at the client's doorstep. Withdrawals are permitted but incur a fee to the client. The Monthly Deposit Plan consists of regular monthly deposits for fixed periods in which withdrawals are not permitted. Clients also receive incentives including cash gifts on successful maturity and some insurance cover.
This paper first examines different designs that provide incentives to clients to commit to save. Mechanisms are divided into depositside mechanisms that help clients make regular deposits, and withdrawal-side mechanisms that help clients restrict the use of their funds except for well-planned uses or emergencies. Using results from a short web-based survey of microfinance instititutions, the paper describes different commitment savings products in use around the world.
Self-Help Movement in India
By Kim Wilson
Drawing from the experience of the Self Help Group (SHG) movement in India, this paper differentiates between the emerging and traditional microfinance. The author states that traditional or "old" microfinance has been characterized by:
- Intricate, explicit rules dictated and directed by microfinance institution (MFI);
- Reliance on paid animators (field workers) to engage community members to participate in scheme;
- Seeking self-sufficiency at institutional level - institution to cover all costs through internally generated income;
- Interest rates often ranging from 36% to 87%.
As against this, the SHG-bank linkage program, which according to the author represents new microfinance, is characterized by:
- Simple rules made by groups;
- Multiple actors providing organizing, savings, and credit services;
- Growth often resulting from "ripple effect" - groups forming new groups, local volunteers spreading information;
- Self-sufficiency sought at group level;
- Group level rates charged to individual members often range between 24%-60%, while bank charges 12-13% to the groups.
The author concludes that the "new microfinance" as demonstrated by the SHG movement has definite advantages.
Swayam Shikshan Prayog (SSP)
Taken from: "Design and Management of Microcredit Programme", 2004
UNDP
This paper is the second in a series of four case studies of a savings and credit based micro finance program of Swayam Shikshan Prayog (SSP), a NGO in Maharashtra and Gujarat. The study was commissioned by the UNDP office in India and was sponsored by ICICI Bank.
SSP supports women's savings and credit programs by promoting SHGs and linking them with banks and other sources of funds. This paper focuses on the organizational perspective and management of the Savings and Credit Group (SCG) processes, which includes:
- Creating a horizontal base for savings and credit activities, and training women's groups in financial skills;
- Addressing social and economic issues through collective action by SCGs;
- Creating SCG-clusters as learning and networking units;
- Creating teams to organize cluster level activities;
- Facilitating dialogues among women and institutions of the state.
Also see Empowerment: Changes in the Lives of Individual Women, 2004, UNDP
Cuttack Urban Co-operative Bank Taken from: "Sanchayeeta (Saving) Daily Deposit Scheme of
By Kailash C. Sharma
The paper describes the modalities of
The main lessons from this scheme are:
- The Daily Deposit Scheme (SDDS) was born from the believe that tapping poor urban traders' earning on a daily basis is a successful way to get deposits.
- Collection agents are key to the implementation of this scheme. An important share of resources are invested in selecting collectors. The process can go up to 8 months before accepting an application.
- Collectors absorb the administrative burden (i.e. providing receipts, statements, visiting clients, etc) for a 3% commission over deposits.
- SDDS uses savings as a prerequisite to provide loans. Additionally, loan takers must buy shares of the bank, increasing capitalization of the institution.
- Profitability of this scheme is close to 2.5% per year. Loans pay close to 11.5% annual interest rates, while total costs are close to 9% (4.5% payments on deposits, 3% commission to collectors and 1.5% other costs).
NABARD
Since 1993, the National Bank for Agriculture and Rural Development of India (NABARD) has motivated over 560 banks and 3000 NGOs and other institutions to provide financial services to 16.7 million of
This case study can be found in Savings Operations for the Poor: An Operational Guide, edited by Madeline Hirschland, forthcoming from Kumarian Press (
See also:
Savings and economic growth in India: the long-run nexus, 2001, Sahoo, P.& Nataraj, G. & Kamaiah, B.
Microfinance and the poverty of financial services: how the poor in India could be better served, 2002, Sinha, S. & Patole, M.
The New Microfinance: An Essay on the Self-Help Group Movement in India, 2002,
A Study on Rural Financial Service in Paradhipi, 2005 , Gram Panchayat