VCCI a Micro-Finance Company with Section-8 Licence no. 119053 from Central Government, Delhi. VCCI was Incorporated on 2nd July 2020 under Companies Act-2013 as Private Limited Company, vide registration no. U65100DL2020NPL365518. (The word Vaidhudyam means Legal Enterprise/Kanooni Udhyam.)
The Object of the Company is:To reduce poverty in India, by carrying on the business of providing Microfinance and providing credit as permitted by Reserve Bank of India to the poor section of the Population for their socio-economic development in sustainable manner and providing credit to persons belonging to poorer sections either individually or joined together as self help groups.
Micro-finance Industry works on a crude principle of “Close Contact, Trust and Financing Sustainable Livelihoods”. On one hand it fuels micro and small enterprises while on other hand generates employment opportunities in unorganized and organized sector.
Our country has a population of 135.40 Crores and a population growth rate of 1.548%.About 71% live in rural areas, while 29% live in urban areas. India’s diverse economy encompasses traditional village farming, modern agriculture, handcrafts, a wide range of modern industries, and a multitude of services. Services are a major source of economic growth, accounting for more than half of India’s output with less than one third being the labour force. Slightly more than half of the work force is in agriculture, leading the government to articulate a rural economic development programmes that includes creating basic infrastructure to improve the lives of the rural poor and boost economic performance.
The government has relaxed controls on foreign trade and investment. Higher limits on foreign direct investment were permitted in a few key sectors, such as telecommunications. However, tariff spikes in sensitive categories, like agriculture and incremental progress on economic reforms still hinder foreign access to India’s vast and growing market. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. India achieved 8.5% GDP growth in 2006, 9.0% in 2007 and 7.3% in 2008, thereby significantly expanding the manufacturing processes. India is also capitalizing on its large number of English educated people, and is becoming a major exporter of software jobs and services.
Strong growth combined with easy consumer credit, a real estate boom and fast-rising commodity prices fuelled inflation concerns from mid-2006 to August 2008. Rising tax revenues and economic expansion helped the government make progress in reducing its fiscal deficit for three straight years before skyrocketing global commodity prices more than doubled the cost of government energy and fertilizer subsidies. The ballooning subsidies amidst slowing growth brought the return of a large fiscal deficit in 2008. In the long run, the huge growing population is fundamentally a social, economic and environmental problem.
The economy was badly affected during the second half of the year caused by a massive financial crisis triggered mainly due to the collapse of American Banks and Insurance companies. The liquidity constraints started showing and a result banks were reluctant to lend to any sector and more particularly to Micro Finance sectors. This has resulted in many of the Micro Finance Institutions finding it difficult to raise resources.
However, things became positive in the last quarter and with RBI pushing in for higher credit off take, India’s GDP bounced back to a respectable level of 7%.Due to the timely intervention by RBI, the economy has started looking up and banks are now looking at funding the Micro Finance Sector, though cautiously.
Micro Finance in India is playing an important role in poverty alleviation and is widely credited for its success both nationally and internationally. India’s labour force Agriculture (60%), Industry (12%) and services (28%) clearly indicate that even today agriculture is a major employment generator. However, in terms of contribution to GDP, agriculture contributes only 17.2%, whereas industry (29.1%) and services (53.7%) contribute much more.
From the above, it is evident that though there is scope for employment generation in agriculture, there is a significant shift to services and industries, suggesting that there has been a migration of population towards urban locations. With 25% of the population still living below the poverty line and an unemployment rate of 6.8%, life in urban locations throughout the country is going to be more difficult. Hence to meet this challenge, the Micro Finance sector is reaching out to more of the urban poor. Thus there is a significant shift towards urban Micro Finance.
Micro Finance is effectively moving towards a banking type of sector through gradual evolution. Clients are aspiring for large credits for doing scaled up economic activity. Since higher CAR norms are being stipulated by RBI, MFIs need to bring in capital to meet this growing demand of the clients. We need to link the clients with market and technologies. The need for this group is indeed costly as they are scattered and tend to use only tiny loans. Designing of the right products for clients is still a great challenge. To cope with the growing needs the industry is expanding fast and as a result competent human resources is increasingly becoming an issue.
Commercial banks both nationalised and private sectors are now increasingly lending to MFIs and apart from giving term loans, these banks are resorting to securitisation, loan syndication and guarantee. In addition, institution such as SIDBI have continued their lending despite the crisis.
The Reserve Bank of India (RBI) estimates that the overall demand for Micro Finance is around Rs.200,000 Cr. out of which only 10% is being currently met by existing MFIs and banks through the SHG Bank linkage programmer.
VCCI has been following the Grameen Bank methodology envisaging group guarantee for repayment of loans. These groups consist of members who are very close and who have a very good understanding between them. The operating expense is high in view of the weekly meetings as well as the services being made available to the borrowers at their doorstep. It is therefore a challenge for MFI practitioners to explore how they can reduce the operation cost and increase productivity and efficiency