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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 2 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. 3 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, 4 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 5 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 6 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 7 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 8 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 9 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