Microfinance For Small Businesses In Creative Manufacturing And Handmade Space

Need for Micro-Finance 

The concept of microfinance has been highlighted since the 1970s with an aim to uplift the poor section of society and enhance economic growth. Its importance has been amplified amidst the global financial crisis when trust in the formal banking system is shaken.

The concept of microfinance focuses on women also by granting them loans. It act as a tool for the empowerment of poor women as women are becoming independent, they are able to contribute directly to the well beings of their families, and are able to confront all the gender inequalities. The major targets of microfinance are the poor rural and urban households and women too. The Reserve Bank Of India imparts no ceiling with respect to minimum and maximum amounts to be given as loans.

Credit is important to the poor people for maintaining the common imbalance in between the income and their expenditure. It is also vital to the poor people for income-generating activities like investing in marginal farms and other small-scale self-employment ventures. Their access to formal banking channels is low due to the lack of resources and nature of formal credit institutions. Consequently in India, Microfinance institutions and self-help groups are leading to other traditional banking channels as they are catering to the need of credit to poor people. It has contribute a lot in enhancing the quality of life of the poor people.

Therefore microfinance is not a financial system but a tool to allievate poverty from the country and bring social change and especially to uplift the status of women in our country so they can become self reliance. There is a public interest the interest of microfinance and this is what makes it acceptable as valid goal for public policy.

Microfinance in India

The Microfinance Services Bill of India defines microfinance specifically as the service which provides financial assistance to an individual or anyone who is eligible to receive credit. In the same bill, the microfinance institutions in India are organisations or association of individuals and that which has been established for carrying on the business of making credit available for these sections of the population.

PMMY

The Pradhan Mantri Mudra Yojana, launched in April 2015 by the Prime Minister, the Mudra Yojana aims to enable Micro Finance Institutions (MFIs), Non-Banking financial institutions/Companies (NBFCs), Small Finance Banks, RBRs, Commercial Banks, Cooperative Banks, etc. to provide low rate loans to eligible entities. This is done mainly for the non-farming industry, and the main target includes loans to any field whose credit demand is less than INR 10 Lakhs. 

The interventions have been named 'SHISHU', 'KISHOR' and 'TARUN' to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur.

• Shishu (Covering loans upto $633.59/-) : This stage would cater to entrepreneurs who are either in their primitive stage or require lesser funds in order to get their businesses started.

• Kishor (Covering loans upto $6335.75/-): This section of entrepreneurs would belong to either those who have already started their business and want additional funds to mobilize their business.

• Tarun (Covering loans upto $12,671.51/-) : If an entrepreneur meets the required eligibility conditions, he/she could apply for a loan for upto Rs.10 lakhs. This would be the highest level of amount that an entrepreneur could apply for a startup loan.

The loans under MUDRA scheme can be availed only through banks and lending institutions which include:

• Public and Private Sector Banks

• State operated cooperative banks

• Rural banks from regional sector

• Institutions offering micro finance

For more details, visit https://www.mudra.org.in

SIDBI

Small Industries Development Bank of India (SIDBI) is an independent financial institution aimed at aiding the growth and development of Micro, Small and Medium Enterprises (MSMEs) which contribute significantly to the national economy in terms of production, employment and exports. 

SIDBI is the principal development financial institution for promotion, financing and development of Micro, Small and Medium Enterprises (MSME) sector in India. It was established on April 2, 1990 through an Act of Parliament (thus, it is a statutory body). It is headquartered in Lucknow, Uttar Pradesh.

SIDBI aims to facilitate and strengthen credit flow to MSMEs and address both financial and developmental gaps in the MSME eco-system across the country. It co-ordinates functions of institutions engaged in similar activities. Currently, the shares of SIDBI are held by the Central Government and 29 other institutions including public sector banks (PSBs), insurance companies owned and controlled by the Central Government.

For more details, visit https://www.sidbi.in/en 

RRBs

The regional rural banks were the brainchild of Nobel Laureate Prof. Muhammad Yunus.It has inspired the creation of Regional Rural Banks (RRBs) in India. The primary motive of this system is the end-to-end development of the rural economy. 

There were 196 RRBs sponsored by 27 SCBs and one State Cooperative Bank operating in the country with a network of 14,484 branches spread over 523 districts as on March 31, 2005. The government started the process of consolidation and amalgamation in 2005, bringing the number down to 82 in 2010.

As of March-end, 2011, the total number of RRBs stood at 82. This number fell to 64 in March 2013. As of March 2014, the number of RRBs has been reduced to 57. After the 2014 elections, the new NDA government has put hold on further amalgamation of the Regional Rural Banks. The focus of the new government is to improve their performance and explore new avenues of investments in the same. Currently, there is a bill pending to amend the RRB Act which aims at increasing the pool of investors to tap capital for RRBs.

For more details, visit https://financialservices.gov.in/list-rrbs-functioning-country 

SHGs and JLGs

A Self Help Group is a group of individuals with similar socio-economic backgrounds. These small entrepreneurs come together for a short duration and create a common fund for their business needs. There is no requirement of collateral in this kind of group lending. The interest rates are generally low as well.

The Genesis of SHG in India can be traced to formation of Self-Employed Women’s Association (SEWA) in 1970. The SHG Bank Linkage Project launched by NABARD in 1992 has blossomed into the world’s largest microfinance project. NABARD alongwith RBI permitted SHGs to have a savings account in banks from the year of 1993. This action gave a considerable boost to the SHG movement and paved the way for the SHG-Bank linkage program. In 1999, Government of India, introduced Swarn Jayanti Gram Swarozgar Yojana (SGSY) to promote self-employment in rural areas through formation and skilling of SHGs. The programme evolved as a national movement in 2011 and became National Rural Livelihoods Mission (NRLM) – world’s largest poverty alleviation programme. Today, State Rural Livelihood Missions (SRLMs) are operational in 29 states and 5 UTs (except Delhi and Chandigarh). NRLM facilitated universal access to the affordable cost-effective reliable financial services to the poor like financial literacy, bank account, savings, credit, insurance, remittance, pension and counseling on financial services. 

JLGs

JLGs are usually an informal group that consists of 4-10 individuals who seek loans against mutual guarantee. The loans are usually taken for agricultural purposes or associated activities. Farmers, rural workers, and tenants fall into this category of borrowers.

JLG consists of an informal group of 4 – 10 individuals (max 20) who are engaged in similar business/ occupation, formed with the purpose of availing loans through the group mechanism against mutual guarantee. JLG are usually formed by:

Farmers Associations, Panchayat Raj Institutions (PRIs), Farmers' Clubs, Krishi Vikas Kendras (KVKs), State Agriculture Universities (SAUs), Business Facilitators, NGOs, Agriculture Technology Management Agency (ATMA), Bank branches, PACS, Other Co-operatives, Government Departments, Individuals, Input dealers, MFIs / MFOs etc.

Microfinance in Malaysia

Malaysia has four microfinance institutions, namely, Amanah Ikhtiar Malaysia, Yayasan Usaha Maju, Economic Fund for National Entrepreneurs Group and the People's Credit Cooperation (KKR). Both the AIM and YUM, established in 1987, were modelled on the Grameen Bank framework. The rest of the paper is organised as follows: Section 2 discusses the background of Amanah Ikhtiar Malaysia (AIM) followed by Yayasan Usaha Maju (YUM) and The Economic Fund for National Entrepreneurs Group (TEKUN) in sections 3 and 4, respectively. Section 5 provides a summary of Malaysia’s microfinance system. Section 6 compares Malaysia’s microfinance system with the Grameen Bank and People’s Bank (Bank Perkreditan Rakyat-BPR). Section 7 concludes the paper.

Amanah Ikhtiar Malaysia

AIM is the leading and largest microfinance institution in Malaysia. It is the largest Grameen Bank replication outside Bangladesh (McGuire, Conroy, & Thapa, 1998). It was developed in 1988, under the Trustee Incorporation Act 258 (revised 1981) (Chamhuri & Quinones, 2000). AIM is a poverty-oriented microfinance institution that provides loans only to the poor. Many efforts have been made to improve the efficiency of the operation, loan repayment collection and to attract more borrowers. As a result, AIM has had 59,971 new members with an average of 4998 new members every month (Chan, 2010). AIM also introduced additional microcredit loan schemes for economic and social purposes and maintained the policy of charging a low management fee. This loan scheme is tailored to poor and low-income earners living in urban areas. With this loan scheme, it is hoped that the poor can set up small businesses to increase their income and have a better life in the city.

For more details, visit https://www.aim.gov.my/ 

Yayasan Usaha Maju

The second Grameen-modeled microfinance institution in Malaysia is Yayasan Usaha Maju, located in Sabah. Sabah is east of Peninsular Malaysia and forms the north east part of Borneo. Sabah is the second largest state in Malaysia after Sarawak (Sabah, 2009). There are 32 officially recognised ethnic groups in Sabah, with Kadazan the largest group, followed by Bajau and Murut (Sabah, 2009). Sabah’s economy traditionally relied heavily on timber exports and some agricultural products such as cocoa and rubber (Sabah, 2009). In 1970, Sabah was one of the richest states in Malaysia but by 2007 it was recorded as one of the poorest (Sabah, 2009). In the Ninth Malaysia Plan (2006-2010), Sabah’s poverty was three times higher than the national average caused by the inequitable distribution of wealth between the State and Federal governments (Sabah, 2009). 

For more details, visit https://www.yumsabah.com.my/my/ 

The Economic Fund for National Entrepreneurs Group

The third microfinance institution in Malaysia is The Economic Fund for National Entrepreneurs Group (TEKUN) established on 9 November 1998. TEKUN is different from AIM and YUM. It provides loans to both poor and not-so-poor people. The main objective of TEKUN is to provide easy and quick loans to Bumiputra TEKUN’s loan scheme and Indian entrepreneurs. Since 2008, TEKUN has expanded its services to provide business opportunities and business skills training to its borrowers and to develop networking among innovative and progressive entrepreneurs from all over Malaysia. TEKUN is under the purview of the Ministry of Agriculture and Agro-Based Malaysia.

TEKUN offers six financing schemes to micro-entrepreneurs. The value of the loans ranges from RM500 to RM50,000. TEKUN offers loans to both male and female small-medium scale entrepreneurs aged between 18 and 65 years old. The modes of loan repayment are weekly, monthly or semi-annually, depending on the types of business involved and TEKUN management’s decisions. Management fees are 4% of the loan. This new fee charge started in August 2008; it was previously 8%. Apart from their loan repayments, each borrower is also encouraged to put savings into TEKUN at a minimum value of 5% of the annual payment, from their repayments.

Microfinance in Philippines

The government responded with a programme of reforms - the MDP. It formed an important part of their overarching poverty reduction objectives and had three key components: Enhancing the enabling and regulatory environment of microfinance. This was intended to promote market efficiencies and outreach of services at competitive prices. Building viable microfinance institutions (MFIs) that could provide efficient and cost-effective retail delivery of services to the poor. Increasing financial literacy and consumer protection for the users of microfinance services. The MDP was included in the Country Strategy Programme 2005-07, and implementation began in December 2005.

ASA Philippines Foundation

In July 2004, Ambassador Howard Q. Dee and Mr. Kamrul H. Tarafder founded ASA Philippines Foundation with the objective of assisting the poor and improving the quality of their life through microfinance and other social services. With pioneering trustees who had extensive experience in formal finance, microfinance, and development work, the Foundation started its operations in August 2004 using a special method that was redesigned explicitly by Mr. Tarafder during his UNDP period and adapted to the Philippines. Recognizing the need of the poor for financial inclusion, and the strong personal commitment of the founders to provide this, the Assisi Development Foundation (ADF) and the Ninoy and Cory Aquino Foundation (NCAF), extended initial financial contributions to ASA Philippines.

ASA Philippines Foundation provides financial services such as loans, micro savings, business management training for microentrepreneurs, academic scholarships for deserving children of borrowers, disaster assistance, and health care to its members nationwide as part of its CSR activities. ASA does not have microinsurance; however, it provides free burial assistance and MaaASAhan assistance as long as it is financially capable of doing so.

For more details, visit https://asaphil.org/ 

Center For Agriculture & Rural Development (CARD), Inc.

In its vision, the CARD-Mutually Reinforcing Institutions (CARD-MRI) is the global leader in the microfinance industry owned and led by members upholding the core values of excellence, competence, integrity, family spirit, humility and simplicity. It is committed to build sustainable financial and capacity building institutions owned and led by socially and economically challenged families; to provide continued access to integrated microfinance and social development services, such as credit with education, leadership with a heart and innovative community programs, to an expanding membership base by organizing and empowering women and their families; and to continue upholding the highest standards of stewardship of financial, human and institutional resources.

CARD, Inc. was organized in 1986 as a social development foundation, and began operations as a rural bank in selected branches by 1997. To date, CARD-MRI operates in 40 provinces all over the country, with CARD Bank having 42 branches nationwide.

For more details, visit https://www.card.org.in/

CARD Bank Inc.

CARD Bank, Inc.’s origin can be traced from the Center for Agriculture and Rural Development, Inc. (CARD, Inc.), which was organized on December 10, 1986 by a group of 15 rural development practitioners as a social development foundation through responsible financial services. It spent considerable time in refining its operation using modified Grameen Bank methodology in 1989, with the end view of achieving the twin goals of outreach and sustainability. Within a decade, CARD has successfully formalized its micro lending operations by transforming itself into a formal financial institution. In 1997, CARD Inc. obtained its license from Bangko Sentral ng Pilipinas as a microfinance-oriented rural bank. Then on September 1, 1997, the CARD Bank, Inc. opened its door to the public in San Pablo City subsuming four CARD Inc. branches.

In addition, CARD Bank, Inc. became a member of the group known as the CARD Mutually Reinforcing Institutions (CARD MRI) that aims to provide the poor with diverse financial and non-financial services. Inspired by its vision, CARD Bank, Inc.’s ownership was shared among clients on February 14, 2000. From then on, members can buy shares of stocks through transfer of their compulsory savings as payment for shares of stocks. Dr. Jaime Aristotle B. Alip, CARD MRI Founder and Managing Director, fully supported clients’ ownership of CARD Bank, Inc. by saying, “Only by creating a vehicle for asset ownership, can we ensure that the poor will gain control over their own resources and over their own destiny.” CARD Bank, Inc. continues to improve the quality of products and services to better serve its ever-growing number of clients. Currently, it has 55 branches across the country serving more than 900,000 clients. In years to come, CARD Bank, Inc. plans to expand and to open more branches in all regions of the Philippines reaching out to millions of clients.

For more details, visit https://cardbankph.com/

AIMCooP

AIMCooP adapts centralized recording and accounting and fully implemented on-line real-time business transactions throughout its branches nationwide. AIMCooP is recognized as one of the top 20 cooperatives in the Philippines and received awards from various government entities for its support and compliance to government regulations and standards. Guided by its vision, mission and goal, AIMCooP family believe that in cooperativism, AIMCooP will be a catalyst for poverty reduction, nation-building and member empowerment.

AIMCooP belongs to the members and the realization of its noble aspirations depend largely on the sincere and active participation on savings mobilization and capital build-up as these are the sources of its life and the sustenance of its unending growth. The services of AIMCooP are member-friendly with high regard for achieving member’s delight . Maximum consideration of continuous service development and product enhancement is a great part of AIMCooP’s unstoppable quest for ceaseless progress.The goal of AIMCooP is to become the channel of poverty alleviation, elimination of capitalism, improvement of economic standing of the members of the community have been proficient and practiced ever since, yet it is still beyond our commitment to offer more. Hence, AIMCooP is dedicated to expand in operation and extend the benefits to those who have the heart, the loyalty and the willingness to patronize the Vision, Mission and Goal of AIMCooP.

For more details, visit http://www.aimcoop.coop/ 

NWTF

Founded in 1984 as a non-government organization that aimed to help women achieve self-sufficiency and self-reliance, particularly in low-income and depressed urban and rural communities. It sought to increase women’s awareness of their economic potential, to increase their skills and productivity and to improve their quality of life.

For the past 35 years, Negros Women for Tomorrow Foundation, Inc. has been operating as a Non-Government Organization, and for 30 years as a Microfinance Institution using the Grameen method of microcredit. Through Project Dungganon and Project Kasanag, Negros Women for Tomorrow Foundation, Inc. is helping micro-entrepreneurs build and sustain their businesses.

For more details, visit https://microfinancecouncil.org/negros-women-for-tomorrow-foundation-inc-nwtf/ 

Microfinance in Indonesia

Indonesia is renowned for its large-scale microfinance sector, with a range of commercial banks and over 60,000 MFIs reaching more than 50 million people (CGAP). There are $11.2 billion USD loans disbursed, 722,249 borrowers and $13.1billion USD in deposits as of 2013 (MIX Market). Indonesia has more than 50 million MSMEs, representing some 97% of all enterprises and contributing no less than 30% of GDP growth in 2012 (OECD). Currently, however, many of these do not have adequate access to the bank financing they need to grow their businesses, particularly in rural areas. To that end, Bank Indonesia issued a rule that requires banks to have at least 20% of their loan portfolio dedicated to micro-loans by 2018 opening up new opportunities to further grow the sector.

Bank Rakyat Indonesia

BRI was established on 16 December 1895 in Purwokerto, Central Java by Raden Aria Wiriatmaja as De Poerwokertosche Hulp en Spaarbank Der Inladsche Hoofden. Initially started as a savings and loan cooperative for mosques, the simple financial institution was then incorporated as a bona fide bank in 1968.

Today, BRI is one of the largest banks in Indonesia and Southeast Asia that focuses on Micro, Small and Medium Enterprises (MSME) and a pioneer of microfinance in Indonesia. Since its IPO in 2003, BRI has consistently posted profit and paid dividends to shareholders. As of March 2022, BRI’s services are supported by 539,705 BRILink agents, 207,288 EDC units, 14,425 ATMs, and 7,407 CRMs

For more details, visit https://www.ir-bri.com/ 

Badan Kredit Desa

The Badan Kredit Desas (BKD) is a system of village-owned financial institutions located in West, Central, and East Java, and Yogyakarta.  BKD units were first established in 1898 and have existed in their present form since 1952.  The  BKD concept is based on a Dutch system of village banks.  Each BKD unit is owned by an individual village, and operated by three residents of the village.  Units generally transact business only one day per week.  They operate from a village public building or the home of one of the village leaders.  

There are 5,345 BKD units, of which 4,806 were active at the end of 1996. BKDs were established with small capital grants from provincial governments.  Their loan capital is derived primarily from this initial grant, retained earnings, and required and voluntary savings. BKD units sometimes also borrow from BRI, other BKD units, local governments, and other parties. In practice however, most BKDs keep large deposits with BRI branches or Unit Desa and have little need of loans.

For more details, visit https://bkd.co.id/tentang 

Badan Kredit Kecamatan

The Badan Kredit Kecamatan (BKK) is a project of the provincial government of Central Java that lends tiny sums of money at low interest rates to rural people who want to start or expand their business. No collateral is necessary. Only a letter of recommendation from the village chief and a simple one-page form is needed. Unlike commercial banks, BKK usually takes less than a week to process the application. Monthly interest is about 3% while credit from money lenders often costs more than 20 percent a day. It is indeed the fastest, cheapest, most productive, and, according to a World Bank report, the most successful credit system of this kind in the world for the rural poor.

Started in 1970, the BKK now has 510 branches and more than 3000 village agencies, covering about 40 percent of 8,491 villages with a total population of 28 million people. Although the bank is funded and advised by the provincial government, each BKK is basically an independent financing unit which handles both credit and saving. Each BKK branch is also making profits - there are now 320 branches that have their own office building, 76 of which are equipped with computers.

BKK gives credit to small-scale businesses. The loans are large in quantity, but too small in value to be dealt with by commercial banks. The average loan extended to its 500,000 customers is around 80,000 rupiah (or about $370 - 1995)

For more details, visit https://www.gdrc.org/icm/bkk.html 

Bank Perkreditan Rakyat

A BPR, short for Bank Perkreditan Rakyat (People’s Credit Bank), is a type of bank in Indonesia. Like regular banks, BPR Banks take savings and deposits and give out loans. Even though they are sometimes referred to as “Rural Banks” in English, they are available in cities as well as rural areas. Typically, they are rather small. In fact, most of them will only have one branch. Their main purpose is to serve their local community’s savings and loan needs.

Similar to regular banks, BPR Banks are members of the Indonesian Deposit Insurance Company (LPS – Lembaga Penjamin Simpanan). As such, LPS insures deposits in amounts of up to Rp 2 billion per person. If you need to deposit more, you can split it with other family members. To see if your bank is a member of LPS, you should go to their website. On this website, LPS also published the maximum allowed interest rate. The interest rate given to you should not be above this, as this will void the insurance.

For more details, visit https://www.ojk.go.id/en/kanal/perbankan/Pages/Bank-Perkreditan-Rakyat.aspx 

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