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International Journal of Social Science & Interdisciplinary Research__________________________________ ISSN 2277 3630 IJSSIR, Vol. 2 (6), JUNE (2013) Online available at indianresearchjournals.com
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CRITICAL APPRAISAL OF PROSPECTS OF MICRO
FINANCE -A CASE STUDY OF UDAIPUR
YOGITA WAGH, DR HINA KHAN
HYDERABAD
ANDHRA PRADESH
INDIA
______________________________________________________________________________
ABSTRACT
The growth of microfinance in India has also to be seen in the light of financial sector reforms in
India starting from 1991 and the global emphasis on commercialization of the sector. The
financial sector reforms in India have focused on fostering a market based financial system by
increasing competition and improving the quality of financial services. The new approach has
been deeply influenced by the reorientation among international rural financial policy makers
centering on concepts such as self-help, self sustained growth and institutional viability. This
study is an small attempt to study the pattern of growth of Micro Finance in Udaipur for period
(2001-2010).to document the problems and prospects of Micro Finance, to explore how far MFIs
in Udaipur have been successful in strengthening the formal financial system in the process of
nurturing rural poor and to identify & evaluate the level of satisfaction of customers.
KEYWORDS: Financial inclusion, IFAD, Microfinance, MFIs, NABARD, ROSCA’s, RMK.
Introduction: The proposed Microfinance Services Regulation Bill defines microfinance eservices as
“providing financial assistance to an individual or an eligible client, either directly or through a
group mechanism for:
1) An amount, not exceeding rupees fifty thousand in aggregate per individual, for small and tiny
enterprise, agriculture, allied activities (including for consumption purposes of such individual)
or
2) An amount not exceeding rupees one lakh fifty thousand in aggregate per individual for
housing purposes, or
3) Such other amounts, for any of the purposes mentioned at items (i) and (ii) above or other
purposes, as may be prescribed.”
The poor, like the rest of society, need financial products and services to build
assets, stabilize consumption and protect themselves against risks. Microfinance serves as the
last-mile bridge to the low-income population excluded from the traditional financial services
system and seeks to fill this gap and alleviate poverty. Microfinance loans serve the low-income
population in multiple ways by: (1) providing working capital to build businesses; (2) infusing
credit to smooth cash flows and mitigate irregularity in accessing food, clothing, shelter, or
education; and (3) cushioning the economic impact of shocks such as illness, theft, or natural
disasters.
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Micro Finance Institutions:
An organization or association of individuals including the following if it is established for the
purpose of carrying on the business of extending microfinance services:
1) A society registered under the Societies Registration Act, 1860,
2) A trust created under the Indian Trust Act, 1880 or public trust registered under any State
enactment governing trust or public, religious or charitable purposes,
3) A cooperative society / mutual benefit society / mutually aided society registered under any
State enactment relating to such societies or any multistate cooperative society registered under
the Multi State Cooperative Societies Act, 2002 but not including:
o A cooperative bank as defined in clause (cci) of section 5 of the Banking Regulation Act,
1949 or
o A cooperative society engaged in agricultural operations or industrial activity or purchase
or sale of any goods and services.”
Micro Finance Approaches:
1. SHG –Bank Linkage -Dominant Model
2. Financing through MFIs -Emerging Model
3. Group based government programs.
Apex Agencies Involved NABARD, SFMC - SIDBI Foundation for Microcredit, RMKFWWB Government of India –
PMRY and SJSY.
Types of MFI’s:
Microfinance itself is a credit lending model, and within this lending model exist several
subcategories, i.e. microfinance lending models, which differ in terms of where their funds are
sourced from, and how the money is governed.
Microfinance Lending Model 1: Associations
Microfinance Lending Model 2: Bank Guarantees
Microfinance Lending Model 3: Community Banking/ Grameen Bank/ Village Banking
Microfinance Lending Model 4: Cooperatives
Microfinance Lending Model 5: Credit Unions
Microfinance Lending Model 6: Non-Governmental Organizations (NGOs)
Microfinance Lending Model 7: For-profit Banks
Microfinance Lending Model 8: ROSCAs Rotating Savings and Credit Associations (ROSCAs)
Review of Available literature: Rajasthan is relatively a new entrant into micro finance, though organizations like Sewa Mandir,
an NGO operating in Udaipur had set up Self-Help Groups two decades ago for community
mobilization. The popularization of self-help groups was at the behest of NABARD when it
started facilitating bank linkage of such groups. Groups have been promoted by civil society
organizations, government and at the behest international organizations through various
programmes.
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Women and Child Development Department of Rajasthan has been promoting SHGs since 1997-
98 in all the 32 districts of the State. Till January 2006, there existed104861 women’s Self-Help
Groups helping 11 lakh women. The department was able to provide linkage to 43848 groups
and delivered Rs.84.31 crore credit. The savings of these groups touched Rs.38 lakh. The
information provided by NABARD reveals that by 2000, 1941 SHGs were provided credit
linkage and 1236 were refinanced and 930were women’s groups. The total bank loan was
Rs.455.70 lakh. The situation must have improved a lot since then. However, one can say that
quality and number of groups does not go hand in hand in Rajasthan.
Financial Status of Rural Poor: A Study in Udaipur District M S Sriram Smita Parhi
Aravali, again a NGO the Study of the SHGs in Rajsamand, Bikaner, and and Churu and
Bharatpur Districts (undated) .This study looks at SHGs in Rajsamand, Bikaner, Churu and
Bharatpur Districts of Rajasthan. The study deals with SHGs formed by ICDS, NGOs, and other
government departments, PRIs, SGSY. The study finds ICDS groups to be haphazardly formed
to fulfill the targets. The SHGs formed under SGSY, DPIP etc. are mainly activity groups. The
saving structure and inter-loaning structure in such groups are weak.
Ashutosh Kumar and Arun Shrimali, Feasibility Study for Initiating Income
Generating Activities with Existing Women Self Help Groups, IRMA, Anand, 1999.This
report is a feasibility study for initiating income-generating activities with women SHGs of Sewa
Mandir, Udaipur. It has studied the projects at five sites. It identifies possible sources of finance
and type of activities SHGs can undertake. It also suggests the financial gains from undertaking
the activities. It uses alternative cost benefit scenarios to arrive at type of activities a SHG can
venture into. The most important activity identified is dairying. The other activities are bamboo-
based items.
Basix, Equity for Equity
http://www.basixindia.com/micro_finance_in_india.aspBasix undertook a study funded by IFAD
to look into evolution of the MFI and its mission statement, legal status, ownership, governance
and organization structure, areas of operations, size and growth over a period, social technology,
products for savings, credit and other financial services, analysis of operating cost structure,
overall budget, sources of funding, human resources (managers and staff), accounting policies
including provisioning norms etc., system and procedures. The study looked at MFIs in
Rajasthan, UP, Bihar, Orissa, AP and Tamil Nadu.
The study observes that most of the MFIs are undercapitalized that is mainly due to their legal
form- most are Societies/ Trusts, which do not have any concept of equity. This restricts these
MFIs' ability to seek adequate debt in the long run. Moreover, there is no cushion to absorb loan
losses, though some have built reserve funds at various levels. Though the apex financial
institutions are aware of this problem, till recently they have not done much about it. In fact most
lending schemes to MFIs, such as by the RMK and FWWB, are structured to suit only NGOs
registered as Societies/Trusts. The SFMC may address this problem by insisting that larger MFIs
must move to an appropriate legal structures, such as cooperative societies or companies, which
must be well capitalised.The overall asset quality of the MFIs in the study seemed well given the
country's.
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4.1 OBJECTIVES OF THE STUDY
Microfinance is not so new topic to be studied but for Udaipur, Rajasthan region it is seen that
applicability of micro financial activities is not at a good extent. So what types of initiatives are
being taken by MFIs to develop a suitable framework to spread the benefits of micro financial
activities with special reference to rural poor? It is also an examination topic to study the client’s
satisfaction from the services delivered by MFIs to them. MFIs and its activities are designed to
nourish the living standards of poor people by providing them credit and other facilities, so it
must be examined that whether the MFIs are successfully delivering their objective or not. Under
this stand point the study is a systematic effort to determine the following questions:
1. What types of channels used by MFIs to delivers the services and benefits?
2. Are there any models or theory used by MFIs for smooth delivery of services to clients?
3. Are there any geographic boundaries for delivering micro financial services?
4. Can MFIs reduce the poverty and improve living standard or rural poor?
5. What is level of satisfaction of the clients of MFIs of Udaipur, southern Rajasthan?
6. Which factors help the MFIs, to manage the client’s satisfaction effectively?
7. What type of products and services are offered by MFIs in Udaipur block.
8. Understanding the various dimensions of client satisfaction for MFIs services and
measuring its success variables also.
4.2 RESEARCH DESIGN
According to Zikmund, W. G. (2006), “The research design contributes the blue print for the
collection, measurement and analysis of data”. The research design is the plan and structure of
investigation so conceived as to obtain an answer to the research problem.
Cooper (2006) suggests essentials of research design:
An activity- and time-based plan
A plan always based on the research question
A guide for selecting sources and types of information
A framework for specifying the relationships among the study’s variables
A procedural outline for every research activity
This study accentuate on identifying the critical success of MFIs in boosting the living standard
of rural poor, means research focuses on a set of issues of a single type of organization unit in
this research it is MFIs (Micro Financial Institutions) locate in Udaipur district of southern
Rajasthan.
There are usually two approaches used in conducting a scientific research. One is deductive
approach and another is inductive approach. All scientific theories involve both induction and
deduction and they sometimes differ in the degree to which they emphasize one over another
(Graziano, 2004). A researcher examines and then authentically records what is observed,
without any prejudice. Some of these statements of inspections are established as true and serve
as the basis for theories and laws. In order to establish what is true or false, and to draw
conclusions, two ways are applied: induction and deduction. The basis of induction is empirical
evidence, while that of deduction is logic (Ghauri, Gronhaug, 2002).
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If the deductive approach is used, the researchers generate hypothesis from theory. After that,
they use empirical research and data collection to test the hypothesis. In a deductive approach,
conclusions come from the evidences. In an inductive approach, researchers start working with
empirical observations. Based on these, the researchers make hypotheses that are used to develop
new theories and later these new theories are added to the established ones (Bryman, Bell,
2003). Inductive approach emphasizes on induction and stays very close to the empirical data
(Graziano et al., 2004). So an inductive approach focuses on developing new theories, which
are then used to elaborate general statements, coming from empirical observations.
According to Creswell (1994) there are number of practical criteria to make a distinction
between the deductive and the inductive approach. Perhaps the most significant of these criteria,
is the nature of topic of research. That is, a topic on which there is a wealth of literature from
which one can define a theoretical framework, and a hypothesis lends itself more readily to
deduction. When the topic of research is new, there exists much debate, and on which there is
little literature available, it may be more appropriate to work inductively by producing data,
analyzing and reflecting on what theoretical themes, the data points to.
The purpose of this research / study is not to construct a fresh theory, but to investigate the
research questions based on empirical research and primary data. Furthermore, in this thesis, we
will generate hypotheses from theories and then, we will use empirical research and primary data
to test the hypotheses. When we will draw our conclusions, we will also apply our logic.
Therefore, based on research question and scientific ideal, we chose to follow the deductive
approach.
4.3 SAMPLING PROCEDURE
According to Duckworth, W.E., (1962), sampling techniques are approaches used in selecting
samples from a study population. Given the large scale and complexity of various micro-
financial institutions, the judgmental sampling procedure, a random sampling technique was
used to select the MFIs for analyzing the critical success factors. For selecting the client’s
random sampling was used in this study.
4.3.1 SAMPLING PROCEDURE FOR MICRO FINANCIAL INSTITUTIONS
The nature of research design is such that the micro financial institutions were identified through
judgmental and random sampling procedure. The researcher has used his judgment at the level of
selection of MFI among various MFIs located in district to examine their critical success factor
and their contribution in poverty alleviation of rural poor. The judgment for selection of MFIs
has been pertained to: the size and scale of MFI, locality of MFI, and availability of various
types of financial services, public awareness, and cost applied in service.
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A list of participating MFIs is given in Table 4.1.
Table 4.1: Participating MFIs in Research
S. No. NAME OF PARTICIPATING INSTITUTIONs
BANKS
1. Allahabad Bank
2. Bank Of Baroda
3. Dena Bank
4. Vijaya Bank
5. Canara Bank
6. Oriental bank of Commerce
COOPEATIVE BANKS & CREDIT UNIONS
7. Rajasmand Urban Cooperative Bank
8. Udaipur Mahila Samriddhi
9. Urban Cooperative Bank
10. Kamakshi Credit Cooperative Society
NGO’s
11. SEWA Mandir
12. Rural India Development Institute
13. SAHAYATA
RRB’s
14. Rajasthan Gramin Bank
15. Mewar Anchlik Gramin Bank
16. Baroda Rajasthan Gramin bank
Source: - Survey
Total 100 questionnaires were administered to capture the relevant information of MFIs and their
activities for rural poor.
And, micro financial activities are determining the success of these MFIs in poverty alleviation
program at rural level of study area block of Udaipur district.
4.3.2 SAMPLING PROCEDURE FOR CLIENTS
For collecting the responses of clients’ convenience sampling procedure is followed. Under this
procedure it is taken care of that responses are collected from only those clients who are able to
understand the necessity of the research, and can interpret that any of the fruitful outcome will
definitely benefited them in future into services offered by MFIs. Another issue was under
consideration while selecting the clients that the respondent should know about the MFIs and
their activities and must be a microfinance participant.
Total of 400 questionnaires were distributed to clients or microfinance participants. Fist unit of
formal structured questionnaire was administered to capture, group participation, new loans,
uses, and loan repayment as well as household incomes and also helps to determine their
satisfaction with the help of second unit of questionnaire.
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4.4 PROCEDURE FOR DATA COLLECTION
To attain the objectives of the study required data were collected through both primary and
secondary data source.
4.4.1 PRIMARY DATA
Primary data is unpublished data and generally collected through the respondents. In this study
primary data was collected under following categories:
1. Raw and Unpublished facts and figures from MFIs database, Files and Records.
2. By observing clients opinion about the services by investigating them through a
structured questionnaire.
3. Enquiring clients from different blocks of the study area to capture comprehensive
information to identify the contribution of MFIs in nourishing their standard of living.
4. Structured questionnaire used to obtain data on factors which affects efficiency of micro-
financing activities.
5. Study of study area blocks families’ households before and after micro financing
activities.
Two different set of questionnaire were prepared for data collection, under following
classification:
1. Questionnaire to determine success of MFI in nurturing the rural poor.
2. Questionnaire to determine satisfaction level of clients of Micro Finance institutions.
This method is considered significant to corroborate the log data and highlight the other factors
affecting the success of MFIs in service delivery and client satisfaction. The closed ended
questionnaire was designed to obtain the opinions of clients and MFIs about the success of MFI
in nourishing the rural poor living standard and client’s satisfaction.
4.4.2 SECONDARY DATA
The data which is procured through already published sources like reports, websites, research
papers, books etc is known as secondary data. Main sources of such kind of data were databases
of MFIs that are their log files which were computerized. Also, important data such as the
turnover of clients, their educational profiles with the cost applied on services, infrastructure
facilities detail were collected and subsequently validated by interviewing the employees of
MFIs. The client’s flow was quantified using this data. Existing data were also obtained from the
records and office reports.
4.5 ANALYSIS AND PRESENTATION
The data obtained through both sets of questionnaire were analyzed by using appropriate
statistical tools. The filled up questionnaires were coded and master data sheet was prepared. The
data was then tabulated and classified on the basis of independent and dependent variables.
Detail analysis, interpretation and discussion of the data are presented in chapter-5.
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The summary statistics of the collected data have been presented in a systematic manner. The
statistical tests: descriptive statistical analysis (Mean, Standard Deviation, and Percentage), t-test,
principal component factor analysis and ANOVA were used for analysis.
5.2.1 HYPOTHESES FRAMED FOR THE STUDY
H0A : There is no significant relationship between employees and MFIs success.
H1A : There is significant relationship between employees and MFIs success.
H0B : There is no significant relationship between client base and MFIs success.
H1B : There is significant relationship between client base and MFIs success.
H0C : There is no significant relationship between Infrastructure Facilities and MFIs success.
H0C : There is significant relationship between Infrastructure Facilities and MFIs success.
H0D : There is no significant relationship between cost of service and MFIs success.
H1D : There is significant relationship between cost of service and MFIs success.
H0E : There is no significant relationship between External environmental factors and MFIs
success.
H1E : There is significant relationship between External environmental factors and MFIs
success.
H0F : There is no significant relationship between improvement in economic status and Rural
Poor Nurturing.
H1F : There is significant relationship between improvement in economic status and Rural
Poor Nurturing.
H0G : There is no significant relationship between improvement in social status and Rural
Poor Nurturing.
H1G : There is significant relationship between improvement in social status and Rural Poor
Nurturing.
H0H : There is no significant relationship between improvement in political status and Rural
Poor Nurturing.
H1H : There is significant relationship between improvement in political status and Rural Poor
Nurturing.
5.2.2 Testing of Hypotheses
The study concentrates on examining the critical success factors of MFIs and focuses on the
factors which ensure the nourishment of rural poor. So established hypotheses determines the
significant relationship between the identified dimensions and MFIs success and nurturing of
rural poor.
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Table 5.6: Effect of dimensions on MFIs success as a critical success factors
Dimensions Variables Mean S.D F Sig Accepted /
Rejected
Employees
Clients are Aware about
MFA 3.15 1.451 1.646 .004* Rejected
Loan Defaults are there 3.33 1.346 2.587 .001* Rejected
MFI is achieving the
objective of financial
inclusion
3.02 1.411 2.312 .003* Rejected
Training program for
clients to aware about the
MFIs
3.84 1.247 1.788 .001* Rejected
Micro Financial activities
nourish the living state of
poor
4.04 1.157 1.797 .006* Rejected
Client Base
Client Turnover is Good 2.87 1.225 1.812 .004* Rejected
Loan Defaults are there 3.01 1.331 2.014 .002* Rejected
Education Level of Clients
is Low 3.21 1.587 1.810 .001* Rejected
Clients are uneducated for
financial service 3.09 1.322 1.682 .002* Rejected
Clients Complain about
services 3.60 1.479 2.226 .021* Rejected
Infrastructure
Facilities
Transportation facilities
are there to reach
customers
2.31 1.308 1.658 .011* Rejected
Telecommunication
facilities are good 2.92 1.392 1.556 .008* Rejected
Communication due to
geographic dispersion is
difficult
3.09 1.277 1.313 .009* Rejected
Costs
High operational cost 4.01 1.012 1.771 .006* Rejected
Lack of Access of funding 3.64 1.222 1.801 .001* Rejected
Loan collection method
leads to delayed payment 3.55 1.045 2.426 .010* Rejected
Fraud is a problem for
business
3.12 1.113 1.826 .015* Rejected
External
Environment
Political 4.11 0.985 2.445 .004* Rejected
Economical 3.44 1.169 2.621 .001* Rejected
Social 3.09 1.223 1.952 .009* Rejected
Technological 3.16 1.362 2.059 .001* Rejected
Legal 2.54 1.319 1.847 .001* Rejected
* Significant at .05 level.
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From Table 5.6, it could be interpreted for analyzing the effects of dimension of MFIs success as
a critical success factor ANOVA is applied. The significance of value is measured at 5 percent
level.
For the dimension employee the calculated values of variables are found significant at 5 percent
level, so alternated hypotheses is accepted. Hence, it is concluded that there is significant
relationship between employees and MFIs success so it could be interpreted that employees of
MFIs are critical success factors for MFI.
For the dimension client base the calculated values of variables are found significant at 5 percent
level, so null hypotheses is rejected and alternate hypotheses is accepted. Hence, it is concluded
that there is significant relationship between client base and MFIs success so it could be
interpreted that client base of MFIs are critical success factors for MFI.
Similarly, for the dimension infrastructure facilities values of F are found significant at 5 percent
level, so alternate hypotheses in accepted. So it could be concluded that there is significant
relationship between infrastructure facilities and MFIs success so it could be interpreted that
infrastructure facilities of MFIs are critical success factors for MFI.
For the remaining dimensions costs and external environment values of F are found significant a
5 percent level, so the related null hypotheses will be rejected and alternate hypotheses will be
accepted. So it could be concluded that there is significant relationship between costs and MFIs
success, external environment and MFI success, so it could be interpreted that costs and external
environmental factors of MFIs are critical success factors for MFI.
Table 5.7: Presentation of Hypotheses on MFIs success as a critical success factors
Dimensions Null /
Alternate Hypotheses
Accepted
/
Rejected
Employee
Null There is no significant relationship between
employees and MFIs success. Rejected
Alternate There is significant relationship between employees
and MFIs success. Accepted
Client Base
Null There is no significant relationship between client
base and MFIs success. Rejected
Alternate There is significant relationship between client base
and MFIs success. Accepted
Infrastructure
Facilities
Null There is no significant relationship between
Infrastructure Facilities and MFIs success. Rejected
Alternate There is significant relationship between
Infrastructure Facilities and MFIs success. Accepted
Costs
Null There is no significant relationship between cost of
service and MFIs success. Rejected
Alternate There is significant relationship between cost of
service and MFIs success. Accepted
External
Environment
Null There is no significant relationship between External
environmental factors and MFIs success. Rejected
Alternate There is significant relationship between External
environmental factors and MFIs success. Accepted
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So from Table 5.7, it could examined that all the alternate hypotheses were accepted, these
hypotheses confirms that all dimension employee, client base, infrastructure facilities, costs and
external environment are critical success factor for MFI success.
Table 5.8: Analyzing the dimensions confirms nurturing of the rural poor by Micro
financial activities
Dimensions Variables Mean S.D F Sig Accepted /
Rejected
Economic
Increase in Income 2.81 .965 1.542 .001* Rejected
Increase in Saving 3.15 1.114 1.941 .009* Rejected
Increase in Income
generating activities 2.87 1.122 2.011 .002* Rejected
Reduction of Poverty 2.42 1.019 1.649 .006* Rejected
Improved decision power 2.50 1.246 1.797 .006* Rejected
Social
Communication with
financial institution
employees
2.79 1.331 1.742 .005* Rejected
Participation in social
development activities 2.00 .987 2.119 .001* Rejected
Social structure
improvement 2.16 .995 1.827 .001* Rejected
Political
Participation in Village
Meetings 2.89 1.458 1.658 .009* Rejected
Voting independently
without money pressure 2.23 1.136 1.782 .010* Rejected
* Significant at .05 level.
From Table 5.8, it could be interpreted for analyzing the dimensions confirms nurturing of the
rural poor by Micro financial activities ANOVA is applied. The significance of value is
measured at 5 percent level.
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Table 5.9: Presentation of Hypotheses on dimensions confirms nurturing of the rural poor
by Micro financial activities
Dimensions Null /
Alternate Hypotheses
Accepted
/
Rejected
Economic
Null
There is no significant relationship between
improvement in economic status and Rural Poor
Nurturing.
Rejected
Alternate There is significant relationship between improvement
in economic status and Rural Poor Nurturing. Accepted
Social
Null
There is no significant relationship between
improvement in social status and Rural Poor
Nurturing.
Rejected
Alternate There is significant relationship between improvement
in social status and Rural Poor Nurturing. Accepted
Political
Null
There is no significant relationship between
improvement in political status and Rural Poor
Nurturing.
Rejected
Alternate There is significant relationship between improvement
in political status and Rural Poor Nurturing. Accepted
So from Table 5.9, it could be examined that all the alternate hypotheses were accepted, these
hypotheses confirms that all dimensions economical, social and political are very significant and
could ensure that improvement in political, social and economical state defines the nourishment
of rural poor.
Conclusion: The basic aim of organizing this research is to examine the critical success factor of
MFI in nurturing the rural poor including the examination of factors influences customer
satisfaction for the services offered. For this purpose the data collection was done through three
systematic and structured questionnaires. The examination of MFIs employee’s opinion about
the political, social and economical dimension and related variables shows that micro financial
institution and micro financial activities positively affects the status of a rural poor and nourish
the status of living positively.
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