1 MASTERS IN BUSINESS ADMINISTRATION (Finance) “Dissertation” “Analyzing the Commercialization of Micro Financing Business in India” Submitted to: Prof Ann Masterson Supervised By: Prof Ann Masterson Date of Submission: 23rd May 2016 Word Count: 20,772 Words Subject code: B9RS102 Submitted by: Tilak Pareek 10176400 Abstract Micro financing business is becoming a major sector in the economic development of developing countries The main area that the researcher has chosen is “Analyzing the commercialization of Micro Financing in India” In order to give the readers a more clear knowledge of the study, the background of the study is presented, where the researcher has described how it helps in evading poverties In the literature review part, the study contains the overall concept of the microfinance and commercialization of micro financing institutions In addition it can be assured that the techniques that have been introduced in the research, provide results as per Now, in order to talk about research philosophy, it would be appropriate to say that the researcher has taken up positivism philosophy, which helps to know the actual research process The researcher has presented various models of microfinance to provide the readers knowledge over the current trend pursued by Indian microfinance institutions Research methodology part contains all the information about the approaches, strategies and designs that the researcher has taken to conduct the study Data analysis part of the study analyses the gathered data As the data have been gathered through the questionnaires, the questions that were asked in the survey have been presented accordingly It has been found that the most of the respondents have acknowledged the commercialization a positive step by the institution if the institutions pursue ethical practices In the conclusion chapter the researcher has reflected all the recommendations and an overall conclusion of the study as per For each of the objectives the research has given information as per tin the objective link part of that chapter The overall recommendation of the study is also present At last the limitations and the future scope of the study is given Acknowledgement I am immensely to all who have helped me to complete this study A key role has been played by my supervisor, Ann Masterson, who supported me continuously and helped me to complete my research by providing all necessary articles Thanks, to the employees who were highly cooperative and help me to get all necessary information for my research I also like to thank all my friends who have helped me a lot to complete this research Thanking you, Table of Contents Chapter 1: Introduction 10 1.1 Introduction: 10 1.2 Background of the study: 12 1.3 Problem Statement: 13 1.4 Research rationale: 13 1.5 Research aim: 15 1.6 Research Objectives: 15 1.7 Research Question: 15 1.8 Significance of the study: 16 1.9 Structure of the dissertation: 16 1.10 Summary: 17 Chapter 2: Literature review 19 2.1 Introduction: 19 2.2 Previous studies: 19 2.3 Conceptual framework: 21 2.4 Concept of microfinance: 21 2.5 Benefits and challenges in microfinance: 22 2.6 Models of microfinance: 24 2.7 The commercialization process of micro financing institutions: 26 2.7.1 Advantages and opportunities of commercialization of micro financing institutions: 28 2.7.2 Setbacks of commercialization of micro financing institutions: 30 2.8 Present scenario of micro financing institutions in India: 31 2.8.1 Geographical reach of micro financing in India: 33 2.9 Backlogs of micro financing in India: 35 3: Research Methodology 38 3.1 Introduction: 38 3.2 Methodology framework: 38 3.3 Research Onion: 38 3.4 Philosophy: 39 3.4.1 Justification for the chosen philosophy: 40 3.5 Approach: 41 3.5.1 Justification for the chosen approach: 41 3.6 Design: 42 3.6.1 Justification for the chosen design: 43 3.7 Data collection technique: 43 3.8 Sampling process: 44 3.9 Plan for data analysis: 45 3.10 Ethical pursuance: 45 3.11 Gantt Chart: 45 3.12 Summary: 47 Chapter 4: Data analysis 48 4.1 Introduction: 48 4.2 Analysis of the survey outcomes: 48 4.3 Summary: 68 Chapter 5: Conclusion and recommendations: 69 5.1 Conclusion: 69 5.2 Objective linking: 69 5.3 Recommendations: 72 5.4 Limitation of the study: 73 5.5 Future scope of the study: 73 6.0 Reflection: 73 References: 76 Appendices: 81 List of tables Table 1: Gantt Chart 36 Table 2: Age group of the participants 38 Table 3: Gender Deviation of the participants 39 Table 4: Time period of the participants as entrepreneur 41 Table 5: Reason for choosing microfinance 42 Table 6: Participants’ opinion regarding the appropriateness of microfinance 44 Table 7: Different challenges in microfinance 45 Table 8: Opinions of the participants regarding the availability of microfinance to the 47 middle and lower income group Table 9: Participants’ opinion regarding the rate of unavailability of microfinance 48 Table 10: Participants’ opinion regarding the government’s step for microfinance 50 Table 11: Participants’ opinion regarding the reorganization of microfinance in India 51 Table 12: Participants’ Opinion regarding the commercialization of microfinance in 52 India Table 13: Participants’ opinion regarding the impact of political instability on 54 microfinance List of figure Figure 1: Structure of the Study 12 Figure 2: Conceptual Framework 16 Figure 3: Research Onion 30 Figure 4: Research Philosophies 31 Figure 5: Research Approaches 32 Figure 6: Research Design 33 Figure 7: Age group of the participants 38 Figure 8: Gender Deviation of the participants 40 Figure 9: Time period of the participants as entrepreneur 41 Figure 10: Reason for choosing microfinance 42 Figure 11: Participants’ opinion regarding the appropriateness of microfinance 44 Figure 12: Different challenges in microfinance 45 Figure 13: Opinions of the participants regarding the availability of microfinance to the 47 middle and lower income group Figure 14: Participants’ opinion regarding the rate of unavailability of microfinance 48 Figure 15: Participants’ opinion regarding the government’s step for microfinance 50 Figure 16: Participants’ opinion regarding the reorganization of microfinance in India 51 Figure 17: Participants’ Opinion regarding the commercialization of microfinance in 53 India Figure 18: Participants’ opinion regarding the impact of political instability on 54 microfinance 10 Chapter 1: Introduction 1.1 Introduction: Presently, micro financing business is becoming a major player in the economic development of developing countries The main area that the researcher has chosen is “Analyzing the commercialization of Micro Financing in India” Gueyie, Manos & Yaron (2013) has stated that this business had its first appearance, as an associate, in the money lending sector in 18th century At that time a theorist named Lysander Spooner, proposed the benefits of the scheme to relief the farmers and small scale entrepreneurs from poverty Micro financing is termed as comprehensive range of products such as loans, insurances, savings and remittance that are provided by micro financing institutions such as banks, cooperative societies and non-governmental organization (CGAP, 2012) This concept was derived by Nobel Prize winner Yunus Khan to alleviate poverty The chief aim of micro financing institutions is to provide uncollateralized loans and currently these face stiff competition with commercial financial institutions In order to explain the impact of commercialization on Indian micro financing, there are few studies conducted on micro financing with relation to poverty reduction projects at worldwide level The literature of Ashta et al., (2014), featuring in the research covers complex information on MFIs It is hard to quote the sources for both the poverty reduction and micro financing schemes There are many problems which arise, when micro financing is used for the poorest section of society in terms of generating the profit over them Investing in such projects will guarantee higher scope of repayment because of the social benefits associated with such kind of investment The other side of report also claims that investing in the social benefit projects will eventually make up the economic objectives of such kind of micro financing investments In terms of key benefits and challenges of commercialization of micro financing in India, it is claimed in the report of Ahmeti (2014) which stated that, NGO-MFIs are facing greater issues in the wake to opt for more sustainable practices in choosing financing options This has led to speedy repayment of various loan amounts to earn good credit ratings, the key to such successful venture in the focus on high density urbanized areas rather than investing in 73 Lastly it can be said that commercialization will be able to improve the sector wholly in the future, if the workings are made accordingly keeping in mind the fact of improving the lives of the poor people of India 5.4 Limitation of the study: Although the endeavour has been made to get the best possible information on the topic but certain issues relating to it cannot be ignored First of all the time limitation posed a major issue for the research study as making them understand the research purpose was rigorous Thereafter, the illiteracy of the samples were another major problem and therefore gaining optimum information can be questioned Cost factor was another point of concern for the researcher Therefore, it can be told that the result of the research may to some extent not be as it should 5.5 Future scope of the study: The research has been made on the topic “commercialization of the microfinance business in India” It has been found that after the Andhra Pradesh scandal in 2011, the RBI has set new rules for this sector, which have initiated the concept of commercialization Prior to which, there was no rules and the institutions had full freedom to operate on their will However, though this new rules were set to improve the lives of the poor, ultimately it turned out ineffective Therefore, the researcher has given equal weight to all the three factors that have shown negative implications of the commercialization These three factors are poor regulation, greed to avail higher profits and inefficiency of the institutions The researcher has given clear reflections on the above three factors and related topics, which will help the readers to grasp a comprehensive knowledge over the topic 6.0 Reflection: This project taught me the relevance of the commercialisation of the micro financing system followed in India The micro-financing system is used for analysing the importance of the system that helps in understanding the issues related to the finances Through the data analysis method I understood the relevance of collecting and evaluating the information that are required for increasing the financial performances of the economy of the country 74 Through an improved economic plan, the sustainable practices for the development is designed and implemented I understood the factors that are associated with loan applications for the people Applicants with positive credit ratings are necessary for approval of the loan The key success factors are required for improving the economic condition of the people For the rural development and projects, which is required for approving the loans of the employees of the company? I understood the relevance of the financing system and the loans that is required for executing the works The negative impact of the credit ratings is impacted by evaluating the social impact or the benefits that are associated with the investment plan (Den Haan et al., 2009) I learned the relevance of the commercialisation which has majority impacted the microfinancing system Through this process the profit distribution method essential for the business development is used for analysing the challenges that are associated with the task performances Through the self-regulated method, the funds borrowing method are decided and implemented by the company This is an effective method that helps in implementing the changes that are quite essential for regulating the banking policies In-debating process is followed by the management or the banks for penetrating into different markets This is a process that helps the investors to gather the required information about the challenges that could impact the business development The trends for banking policies are quite different in various countries It is necessary to understand the policies and introduce an effective measure and strategies that will help in increasing the performances of the banks The process of commercialisation has negatively affected the business and the banking system followed by the individuals This process is evaluated to understand the impact of the process on the poor people and evaluation of the interest rate impact on the overall business activities As compared to earlier days, the banks provide less benefits and services to the clients This has affected the business performances and facilities that are expected to be provided to the service providers This is an important strategy that is used for evaluating the challenges that impacts the business activities related to the banking sectors (Driscoll, 2004 pp 451-71) 75 I understood the impact of the interest rates on the overall banking system, which helps in developing the best strategies that is used for improving the business performances Prime lending rates and its effect on the banking industry is analysed to determine the best changes that can be introduced for increasing the business activities The major challenge with this issue is determining the steps that are followed by the companies to improve the business performances and the banking industry rates 76 References: Books: Bok, D (2009) Universities in the marketplace: The commercialization of higher education Princeton University Press Creswell, J W (2013) Research design: Qualitative, quantitative, and mixed methods approaches Sage publications Gast, D L., & Ledford, J R (Eds.) 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Option Total number of respondents 25-30 120 31-35 120 36-40 120 41-45 120 46-50 120 Option Total number of respondents Male 120 What is your gender? Female 120 For how long you are running your own business? 82 Option Total number of respondents 1-2 years 120 2-5 years 120 5-10 years 120 10-15 years 120 15-25 years 120 Why you like to opt for microfinance? Option Total number of respondents Easy availability 120 No collateral 120 Low instalments of repayment 120 No paper works 120 Advices from loan issuers 120 How far you believe that microfinance is better option for a small entrepreneur? Option Total number of respondents 83 Strongly agree 120 Agree 120 Neutral 120 Disagree 120 Strongly disagree 120 What are the major challenges that you have faced in using microfinance? Option Total number of respondents Lack of availability 120 Lack of proper information 120 Complex procedure 120 How far you believe that microfinance must be available to the middle class and lower class people? Option Total number of respondents Strongly believe 120 Believe 120 84 Neutral 120 Disbelief 120 Strongly disbelief 120 ] How many times you have encountered the problem of unavailability at the time of opting microfinance? Option Total number of respondents Some times 120 Always 120 Very few 120 Never 120 How far you agree that Indian government must take care to the availability of microfinance? Option Total number of respondents Strongly agree 120 Agree 120 Neutral 120 85 Disagree 120 Strongly disagree 120 10 How far you agree that India must reorganize the microfinance sector? Option Total number of respondents Strongly agree 120 Agree 120 Neutral 120 Disagree 120 Strongly disagree 120 11 Do you believe that commercialization of microfinance in India would help you to boost up your capital for further investment? Option Total number of respondents Strongly agree 120 Agree 120 Neutral 120 Disagree 120 Strongly disagree 120 86 12 Give your opinion whether the political instability in India could create a sound barrier to the growth potential of the micro financing sector? Option Total number of respondents Strongly agree 120 Agree 120 Neutral 120 Disagree 120 Strongly disagree 120 Appendix 2: Data showing loans provided by the micro financing institutions in different districts of India 87 ... opportunities of commercialization of micro financing institutions: 28 2.7.2 Setbacks of commercialization of micro financing institutions: 30 2.8 Present scenario of micro financing institutions in India: ... done to know the trend of the microfinance business in India; thereby learner will be able to know the details of the sector Thereafter, identifying the benefits of the micro financing institutions... Identifying the benefits and the setbacks of microfinance in India is another objective of the research  Identifying the scopes and challenges of high commercialization of the business in India