MANAGEMENT PROJECT

TOPIC- IMPACT OF DEMONETIZATION ON MICRO-

FINANCE INSTITUTIONS

SUBMITTED TO- SUBMITTED BY-

MISS.SHEFALI SAKSHI MANGLA (191/17)
ZENIA GUPTA (223/17)
SECTION-D
4TH SEMESTER

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 ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to my teacher Ms. Shefali
who gave me the golden opportunity to do this wonderful research on the topic-
Impact of Demonetization on the Micro- Finance Institutions.

I would also like to thank my parents and friends who helped me a lot in finalizing
this project within the limited time frame.

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 TABLE OF CONTENTS
S.NO TOPIC PAGE NO
1. Introduction 4-5
2. Review of Literature 6-7
3. Objectives 8
4. Research Methodology 9
5. Hypothesis 10
6. Sample Procedure 11-12
7. Representation of graphs and pie- charts
From the result of Questionnaire 13-17
8. Statistical Analysis 18-19
9. Conclusion 20
10. Recommendations 21
11. Bibliography 22

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 INTRODUCTION
Demonetization is the act of devastating a currency unit of its status as legal tender.
Whenever the government wants any change in national currency, there is no other
solution except demonetization by RBI. The general meaning of demonetization is
nothing but withdrawing a particular currency from circulation by RBI and
replacing it with new currency notes having new designs, security features and
denomination.

Demonetization is not a new thing to Indian economy. India is already familiar

with this concept as it had gone through this phase of demonetization in the year
1938 when RBI printed Rs. 10000 notes but in January 1946 these notes along with
5000 and 1000 were demonetized. Then In 1978, during Morarji Desai tenure, the
Janata party decide to withdraw 5000, 1000 and 10000 notes to end the black
money transactions.  In a country where 69% of the population lived in rural areas
and 90% of the transactions are cash based, the move was paralyzing.  The small
market traders, businessmen and farmers were affected the most due to the nature
of their work.

On the evening of 8th November, 2016, the Prime Minister of India, Mr. Narendra
Modi took the biggest decision of ceasing the 500 and 1000 notes from 9 th
November, 2016. This was done in order to disrupt the black money market and
terrorism activities. Due to this unexpected declaration, there was a prolonged cash
shortage which threatened the economic output of the country. This currency ban
was required to control inflation, to fight against corruption, to remove forged
currency and to reduce cash transaction.

This decision made by the government affected the Indian Economy and people.
India deals with the most cash transactions, due to which the lives and the

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businesses of the people struck down which lead to the failure of the repayment of
loans. Sectors with least cash transactions observed a rise in business whereas
sectors with most cash transactions examined a high volatility in their business.
Some sectors like E-Wallet business witnessed adverse effect whereas certain
sectors like microfinance, grocery sellers observed a sharp decline in their income.

Our main concern is to focus upon the impact of demonetization on the micro-
finance institutions. It is an organization that offers financial services to low
income group of people. Microfinance sector in India is playing a major role in
developing the financial infrastructure of the country by serving to the unprivileged
and deprived sections of society. Impact of demonetization was tremendously felt
in this sector as MFIs usually follow weekly, fortnightly or monthly collection of
installments and that too in cash of small amount. In India, micro-lending is the
most common product after micro-saving and micro-insurance.

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 REVIEW OF LITERATURE
In India, there are a large number of micro-finance companies which fulfil the
wants of rural and semi urban citizens; which includes women, daily wage
workers, small traders and retailers. Most of their transactions are done in cash.
Micro-Financing Institutions provide such people with loans and collect
repayments on daily, weekly, monthly or quarterly basis.

The present study deals with the impact of demonetization on the micro-financial
institutions. The main purpose of the research is twofold- Firstly, to study the
impact on collection and payment of loans, and how MFI loan repayment has
affected after the demonetization period, and measures taken by RBI to protect
MFIs. Secondly, to study the problems faced by the people in the rural area and
semi-urban areas of during and after the demonetization period.

CARE study (November,2016) reveals that due to fewer cash transactions in the
short run, certain sectors and sections will face short term disruptions until the new
notes are widely circulated in the economy.

Mali (December 2016) in a study examines that payment of cash and collection of
installments by micro finance institutions will slow down due to unavailability of
cash.

Waknis (March 2017) in his study observes that there will be depression in the
Indian economy for at least few quarters and formal firms depending on cash-
based transactions will be affected. It further points that despite growth in MFIs,
the operational efficiency of small and mid- size MFIs are more prone to risk due
to internal and external challenges.

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Ratna (2016) signifies that since microfinance sector depends on cash it will be the
most affected businesses due to demonetization.

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 OBJECTIVES
To study the Impact of Demonetization on Microfinance sector -

• To study the challenges faced by Micro Finance institutions in rendering their

loaning activities.

• To study the challenges faced by people of rural and semi-urban areas after
demonetization.

• To review the efficacy and ease of transacting in alternate banking channels by

illiterate and rural population.

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 RESEARCH METHODOLOGY
For the purpose of collection of data, survey method has been used with the help of
structured questionnaire. The questions have been made close ended to avoid any
confusion and the questions have been made in such a way that all the objectives in
the study are fulfilled.

Sample Size- The data is collected by distribution of questionnaires to 30 people

of rural and semi-urban areas.

The questionnaire aims to help us get relevant information about people who take
loans from these institutions. For the analysis of the various tables and graphs have
been used.

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 HYPOTHESIS

 The most affected between the rural and the semi-urban people were the
semi-urban ones due to more liquidity of cash with them.
 Micro finance institutions are also affected as they deal with more of cash-
based transactions.

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 SAMPLE PROCEDURE
Survey on impact of demonetization on Micro finance institutions (rural and semi-
urban people)

NAME: ……………………….

AGE: ………………………….

GENDER: ……………………

OCCUPATION: ………………….

Q.1) Whether you were aware of the policy of demonetization before?

a) Yes
b) No

Q.2) How much cash did you save before demonetization?

a) Less than Rs.3000

b) Between Rs.3000-Rs.5000

Q.3) How much cash did you save after demonetization?

a) Less than Rs.1000

b) Between Rs.1000-Rs.2000

Q.4) After demonetization, how did you repay the loan amount?

a) Borrowings
b) Liquidating the Personal Assets

Q.5) What were the challenges faced by you after the policy of demonetization?

a) Stand in long queues for withdrawing cash

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 b) Unable to meet general necessities
c) Shortage of cash in the Banks and Atm

Q.6) After demonetization, did you shift to online transactions or prefer cash
transactions only?

a) Yes (Online transactions)

b) No (Cash transactions)

Q.7) Were you satisfied with the overall performance by the MFIs after the policy
of demonetization?

a) Yes
b) No

Q.8) What were your Priorities in terms of expenditure after the policy of
demonetization?

a) Basic necessities
b) Entertainment
c) Travel

Q.9) Were necessary steps taken by the MFIs to make you aware about the policy
of demonetization?

a) Yes
b) No

Q.10) How do you perceive the decision of demonetization taken by the Central
Government?

a) Good Decision
b) Bad Decision

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REPRESENTATION OF GRAPHS AND PIE-CHARTS
FROM THE RESULT OF QUESTIONNAIRE

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 STATISTICAL ANALYSIS
1. 43.3% of people responded in positive that they were aware about the policy
of demonetization and 56.7% people responded in negative for the same.
2. 43.3% of the people responded that they saved less than Rs.3000 before the
policy of demonetization and 56.7% responded that they saved between
Rs.3000-Rs.5000 only.
3. 36.7% of the people responded that they saved less than Rs.1000 after the
policy of demonetization and 63.3% of the people responded that they saved
between Rs.1000-Rs.2000 only.
4. 70% of the people responded that they repaid the loan amount by
borrowings after the policy of demonetization and 30% of the people
responded that they repaid the loan amount by liquidating their personal
assets.
5. 40% of the people responded that the main challenge faced by them was to
stand in the long queues for withdrawing cash, 23.3% responded that they
were unable to meet the general necessities and 36.7% people responded
that there was shortage of cash in the banks and atm after the policy of
demonetization.
6. 70% of the people responded that they shifted to online transactions after
the policy of demonetization and 30% of the people responded that they still
prefer cash transactions only.
7. 50% of the people responded that they were satisfied with the overall
performance by the MFIs after the policy of demonetization and 50% of the
people responded that they were not satisfied with the same.
8. 80% of the people responded that their priorities in terms of the expenditure
was basic necessities, 20% of the people responded that their priority was

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 entertainment and 0% of the people responded in negative about the travel
as their priority after the policy of demonetization.
9. 46.7% of the people responded in positive that necessary steps were taken
by the MFIs to make the people aware about the policy of demonetization
and 53.3% of the people responded in negative for the same.
10. 63.3% of the people perceived the decision of the demonetization taken by
the Central Government as a good decision and 36.7% of the people
perceived it to be a bad decision.

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 CONCLUSION
Keeping the objectives of this topic in our mind, we have concluded through this
study that-

 MFIs tried to make the people of rural and the semi-urban area aware about
the policy of demonetization, but their overall performance remained on an
average while rendering their loaning activities.
 The savings of the people of rural and semi-urban areas got reduced after the
policy of demonetization and they had to face a number of challenges
including standing in long queues to withdraw cash and shortage of cash in
banks and atm.
 After the policy of demonetization, people shifted to online transactions and
their priorities in terms of expenditure changed towards fulfilling the basic
necessities of life.
 Although people faced a lot of difficulties due to the policy of
demonetization, still most of the people perceived it as good decision
because it would help the Indian economy in disrupting the black money
market.

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 RECOMMENDATIONS
The MFIs should focus more on the manner in which they are spreading awareness
about the policy of demonetization, as it is not easy especially for the people of
rural and semi- urban to accept it in one go. This would help in improving their
overall performance.

These institutions could organize certain surveys, seminars and personal

interactions. This would help the people a lot and enable them to know more about
this policy. It would result in greater cooperation between the working of the
institution and needs of people.

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 BIBLIOGRAPHY
1. http://www.iibf.org.in/documents/final-thesis-16.4.18.pdf
2. https://search.proquest.com/openview/039c0950e8b3e02b40e2206d58b9913
4/1?pq-origsite=gscholar&cbl=2046044

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