What do I have to do? What should I study? What next?

By Dr. Amrita Dass Director, Institute for Career Studies, Lucknow Dr. Amrita Dass Director, Institute for Career Studies, Lucknow
  • Published 21.05.09

Basic financial services such as credit, savings and insurance give people an opportunity to borrow, save, invest and protect their families against risk. But with little income or collateral, the poor are seldom able to borrow money from banks and other financial institutions. Even when they do have income or assets, the money they require is often too small to appeal to banks.

Microfinance institutions, such as financial co-operatives, financial NGOs and rural banks provide credit to the poor at reasonable interest rates. A loan as little as Rs 2,500 can give the poor a chance to set up a small business, and possibly create more jobs. It can also help secure a family’s food supply, buy medicines and pay for children’s education. Muhammad Yunus, whose brainchild is the Grameen Foundation, Bangladesh, won the Nobel Peace Prize in 2006 for his pioneering work in microfinance.

More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of financial services to finance income-producing activities, build assets and stabilise consumption. These services are not limited to credit, but include savings, insurance and money transfers.

What do I have to do?

Microfinance entails providing loans, generally less than Rs 10,000 to individuals, usually women, to establish or expand a small, self-sustaining business. Microfinance institutions offer business advice and counselling, while clients provide peer support to each other through solidarity circles. An equally important part of microfinance is recycling of funds. Loans are repaid, usually in six months to a year. This continual reinvestment multiplies the impact of each amount loaned. The methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly.

Most jobs in MFIs involve either granting and processing of loans or training and development. Loan managers usually decide who receives money and then track repayment. Non-loan positions involve educating entrepreneurs on how to run their companies, business planning and strategy. However, loan and non-loan positions can overlap. For example, loan managers who review loan or grant applications may also advise entrepreneurs on their business plans. Loan managers may help put finishing touches to a business plan or help entrepreneurs re-analyse their cash flow.

Several MFIs start as not-for-profit organisations like NGOs, credit unions and other financial co-operatives and state-owned development and postal savings banks. An increasing number of MFIs are now organised as for-profit entities, often because it is necessary to obtain license from banking authorities to offer savings services. For-profit MFIs may be organised as non-bank financial institutions (NBFIs) or commercial banks that specialise in microfinance.

Some MFIs provide non-financial products such as business development and health services. Commercial and government-owned banks that offer microfinance services are frequently referred to as MFIs even though only a portion of their assets may be committed to rendering financial services to the poor.

The vast majority of loans go to women because studies have shown that women are more likely to reinvest their earnings in the business and in their families. As families cross the poverty line and micro-businesses expand, their communities benefit. Jobs are created, knowledge is shared, civic participation increases and women are recognised as valuable members of their families and communities.

What should I study?

You should have a background either in economics, mathematics, accountancy, statistics, banking or management to undergo a course in microfinance.

What next?

Over the past few years, Indian microfinance has witnessed unprecedented growth. According to a McKinsey survey, rural India has the potential to become a $500 billion market by 2020.

The number of microfinance institutions in the country is more than 200 and increasing at a fast pace. There are about 52,000 branches of commercial banks, 14,522 branches of regional rural banks and 1,00,000 co-operative bank branches.

This huge network meets the credit needs of the people, thereby creating opportunities for financial professionals seeking alternatives to traditional accounting and banking positions. There is scope for employment in NGOs, public and private banks.

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