Banking

High risk, but also high return -- that's how most experts classify investment in India. Among investors' main concerns are fluctuating currencies, intercommunal tension, corruption, and a lack of infrastructure. It shouldn't really come as a surprise. The continent is rich in natural resources and opportunities. India is one of the few economies in the world which is not currently contracting, but over half the population still live in poverty.

But things are getting better, and for many years, the profitability of foreign companies have been higher here than in most other regions of the world. The challenge is to get the country's wealth to the people.

You have a lot of big business moving in, big companies from Europe, big companies from the U.S. They're all dedicated to developing an economy here. But billions of dollars from overseas companies hasn't made a dent in the lifestyle of many ordinary Indians. The biggest criticism of the country's economic boom is that the new-found wealth isn't getting to the people who really need it. Sixty percent of the Indian people are poor; but there are now a small number of people who are getting very rich.

In Indian villages, people are escaping poverty one loan at a time. Microfinance is changing lives and economies. Small loans, big differences. Micro-credit is said to have lifted tens of thousands families out of poverty, and the loans are primarily focused on women because they have been found to be good creditors, wise spenders and focus on improving the conditions for the entire family.

In village India, most of the people have to make their own living. There aren't jobs, per se. There aren't people that you can go to work for and get a monthly salary. Instead, it's self-employment; it's income generation. It could be subsistence farming. It could be doing something that's a craft that you know how to do. It could be a service industry, like fixing bicycles or repairing shoes on the street, or selling food on the street.

In Mandya the members of Vikasana right now may be sitting on dirt floors worried about how they might buy a couple of goats, or what will happen if no one fixes the pump at the village well. My wife's counterpart may be trying to figure out a way to buy a sewing machine to earn enough to feed her children.

The problem is that many of these people who have skills and who have the motivation to work simply don't have enough working capital to turn this income into a way to adequately support their families. And if we can provide a little bit of working capital, sometimes as little as 50 Euros, people are able to multiply their income, two or three times as much income, and that really makes a colossal difference in their standard of living.

Many of the village women in Karnakata state in South India have no income or property, so they aren’t eligible to get a loan from a traditional commercial bank to help them start a business. The Vikasana Self-Help Womens’ Bank, inspired by the work of Muhammad Yunus and his Grameen Bank in Bangladesh, is exclusively for poor rural women.

Indeed, women are now target clients of many micro-credit institutions worldwide, who say women are more serious about repayments than their male counterparts. In India, giving women responsibility for small loans also raises their socioeconomic status. So when give credit or finances to women, we boost their confidence. And there’s a follow-on effect... when a woman starts making more money, more of her kids start going to school.

Grameen requires its borrowers to organize themselves into groups of five. All are cut off if one borrower defaults. They meet every week to make loan payments at commercial interest rates and critique one another's business plans.

Why aren’t the big banks there?

Vikasana loans are not a handout, but an investment on people's creativity and resourcefulness. And what seem high interest rates -- up to 18 percent a year -- are far less than what poor people traditionally paid to wealthy money-lenders.
The village moneylender in India or Bangladesh charges interest rates of over 150 percent a year. Citibank would love to get that kind of return on its investments -- so why isn't Citibank lending money in Bangladesh villages?
This is a serious question, in terms of both policy and profit. The painfully high interest rates charged by moneylenders in developing countries suggest that marginal investment opportunities there are much more profitable than in advanced industrial nations.
So why isn't there a rush of investment from Western banks to exploit these profitable opportunities -- and, as a byproduct, increase the pace of economic development in these countries?
There are several barriers to entry in the lending business in developing countries, many of which have to do with the information advantages that incumbent moneylenders have over potential entrants.
To begin, the local moneylender is intimately familiar with his clientele, and this gives him a huge information advantage over a bank officer in selecting reliable loan recipients. At the same time, the moneylender is in a very good position to monitor borrowers since he can check up on their activities daily. Local moneylenders are also familiar with village customs and practices and can offer useful business advice. They also operate on a very small scale.
Seeing potential growth, in the past six years, a number of private mainstream financial institutions have entered the microfinance sector as retailers or wholesalers. Banks have provided refinance facilities to NGOs, linking them to financial markets, and have launched retail microfinance operations. Some government banks have also established large, efficient and profitable microfinance operations — breaking from the tradition of low efficiency, low profitability, low repayment and subsidy approaches to lending to the poor.
In 2005, more than 100 million people received small loans from more than 3,100 institutions in 130 countries, according to Microcredit Summit, a Washington-based nonprofit advocacy group that Mr. Yunus helped found. The average loan from Grameen Bank was around 95 Euros.

Safety and your investment

Microfinance has fared well in good times and bad, with returns uncorrelated with those from other asset classes. The world's largest NGO, BRAC (formerly the Bangladesh Rural Advancement Committee), has played a central role in extending small loans, mainly focused on women, with more than $2bn in micro credit loans disbursed, and a 98% repayment rate. And the ASA institution in Bangladesh is one of the most efficient microfinance NGOs in the world, with an adjusted return on assets of 12%.
At the height of Indonesia's financial crisis in 1998, for example, the portfolio at risk at Bank Rakyat, Indonesia's Unit Desa microfinance village banks with more than three million microfinance clients, was less than 6%, while the level of non-performing loans in Indonesia's banking system at the same time was more than 60%.
Monitoring, educating and insuring is done not by high-paid professionals, but by local workers and peasants. The transactions costs of using groups are far, far lower than are the transactions costs for traditional bank loans.
There are other interesting economic angles. Over 90 percent of the borrowers are women. This isn't so much an ideological choice as a pragmatic one -- women turned out to be better credit risks. They were more tightly tied to the home and had fewer outside temptations, so they focused much more intently than did male borrowers on completing their projects.
All this seems to work. Grameen bank says it has a repayment rate of 99 percent, and over 92 percent of the bank's shares are owned by the borrowers. Peer pressure can be an immensely strong force, and the Grameen Bank has figured out how to make it work in the cause of economic development.

Macro-effect: how micro-lending can end poverty

I’ll use Indonesian research for the next part because that country went through an economic meltdown in 1999, which did not touch India.
Speaking at the launch of a micro-credit fund in 2005, Indonesian Coordinating Minister for the Economy Aburizal Bakrie said 99.9 percent of the 42 million businesses across the country were either micro, small or medium enterprises. The fund was created in line with a United Nations-led program for small businesses, and it is hoped that it will help reduce the poverty rate from 16.6 percent to a target of 8.2 percent and the unemployment rate from 9.7 percent to 5.1 percent.

State Minister of Cooperatives and Small and Medium Enterprises Suryadharma Ali said small-scale businesses in the country faced five main problems - access to financial institutions; a high-cost economy; lack of capacity in technology; lack of good management and entrepreneurship; unfair and stiff competition from larger competitors; and a lack of industry associations.
Vikasana has used the Indonesian experience to prepare strategies of developing micro - enterprises, supporting system for the enterprises, empowering the businesses and exploring the market. Its export partner, Beautiful Silks, does market research and marketing outside India.

A small loan could help even more Vikasana members start a home business, or even a store, improve their small plot of land, or fix their well. Anyone who scoffs at the value of 45 Eurocents should talk to Professor Muhammad Yunus. In 1976, the Bangladeshi economics professor tried an experiment. From his pocket, he lent the equivalent of 20 Euros to a group of 42 workers. With that less than half a Euro per person, they bought the materials for a day's work weaving chairs or making pots without having to pay interest to the village money-lender. At the end of their first day, they sold their work and by re-investing the interest saved, soon paid back loan.
That wasn’t the first micro-credit loan - American students did it in Brazil 10 years earlier. But it’s the most successful to date.
There’s plenty of reading out there, such as Eric Thurman’s "The Book of Billion Bootstraps: Micro-credit, Barefoot Banking, and the Business Solution for Ending Poverty."

What we need to start an enterprise

Through there is enough opportunities and options to start an enterprise. How do I Start?

• We must like it and get satisfaction out of it
• Handy in terns of investment
• Availability of raw materials locally
• Demand for the product
• Information / Communication / skill regarding the enterprise
• Facilities to start the same.
• There must be full co-ordination
• Less competitive
• More profitable

WHERE WE CAN GET THE INFORMATION

What is the source for Investment?

• If it is small scale investment loan availability within the group
• Large  scale investment loan availability from Bank

Who will get the loan?

Individual Enterprise

• Should passes bank account
• Regular transportation performed in the Bank
• Regular repayment of loan
• Active involvement in Bank activity

Group Enterprise

• SHG should have completed minimum 6 months
• Weekly regular meetings
• Savings and repayment of loan transaction
• Regular accounts maintenance, book keeping etc.,
• Achievement of higher ranking in grading.

Requirements of bank to avail loan?

• Business and action plan
• Registration letter from small scale industry center
• Permission letter to start enterprise (from Panchayats)
• Sanction letter from electric department ( in case there is a need for electricity)
• If it is a group activity, letter of sharing
• Contract deed if it is a rental building
• No Due certificate from other banks

Why insurance policy?

Any enterprise whether it is related to (material or animal) there are chances of risk and damages for which insurance is needed

Example: cattle, goat, poultry (disease / death etc)
Robbery / theft/ fire damages etc.

Rather repenting for the risk and damages it is better to avoid by insuring them.

Why account to maintained?

What we need to start an enterprise

Through there is enough opportunities and options to start an enterprise. How do I Start?

• We must like it and get satisfaction out of it
• Handy in terns of investment
• Availability of raw materials locally
• Demand for the product
• Information / Communication / skill regarding the enterprise
• Facilities to start the same.
• There must be full co-ordination
• Less competitive
• More profitable

WHERE WE CAN GET THE INFORMATION

What is the source for Investment?

• If it is small scale investment loan availability within the group.
• Large scale investment loan availability from Bank

Who will get the loan?

• Individual Enterprise
• Should passes bank account
• Regular transportation performed in the Bank
• Regular repayment of loan
• Active involvement in Bank activity

Group Enterprise

• SHG should have completed minimum 6 months
• Weekly regular meetings
• Savings and repayment of loan transaction
• Regular accounts maintenance, book keeping etc.,
• Achievement of higher ranking in grading.

Requirements of bank to avail loan?

• Business and action plan
• Registration letter from small scale industry center
• Permission letter to start enterprise (from Panchayats)
• Sanction letter from electric department ( in case there is a need for electricity)
• If it is a group activity, letter of sharing
• Contract deed if it is a rental building
• No Due certificate from other banks

Why insurance policy?

Any enterprise whether it is related to (material or animal) there are chances of risk and damages for which insurance is needed Example: cattle, goat, poultry (disease / death etc) Robbery / theft/ fire damages etc. Rather repenting for the risk and damages it is better to avoid by insuring them.

Why account to maintained?

Any enterprise to run smoothly without hassles proper book keeping and accounts maintenance is needed

• To Identify profit and loss
• To understand the Up’s and down’s of Business
• To understand and pros and cons by all
• To avoid misunderstanding
• To avoid cheating
• To fix price
• To develop and manage the enterprise

Any enterprise to run smoothly without hassles proper book keeping and accounts maintenance is needed

• To Identify profit and loss
• To understand the Up’s and down’s of Business
• To understand and pros and cons by all
• To avoid misunderstanding
• To avoid cheating
• To fix price
• To develop and manage the enterprise