Micro Finance: An Overview of Micro Finance in India

Abstract

In India where 70 percent of its population lives in rural area and 60 percent depend on agriculture (according to the World Bank reports). From the time of independence unemployment and poverty has been two major characteristics and challenges of India. The major cause for the above two has been the unavailability of sufficient credit facilities for the poor and unemployed. These two factors have become the most challenging roadblock in the path of sustainable development of the country. Micro-finance can play a vital role in providing financial services to the poor and low income individuals. Microfinance is the form of a broad range of financial services such as deposits, loans, payment services, money transfers, insurance, savings, micro-credit etc. to the poor and low income individuals. The importance of micro-finance in the developing economies like India cannot be undermined, where a large size of population is living under poverty and large number of people does not have an access to formal banking facilities. Micro-finance is regarded as a useful tool for socio-economic up-liftmen in a developing country like India. It is expected to play a significant role in poverty alleviation and development. There are two broad approaches that characterize the microfinance sector in India is Self Help Groups (SHGs) -Bank linkage programme and Microfinance Institution (MFIs). In India microfinance is dominated by Self Help Groups (SHGs)-Bank linkage programme aimed at providing a cost effective mechanism for providing financial services to the unreached poor. Microfinance allows the poor to get the loan that leads to financial independence and growth. The poor use these loans in a productive manner to create their businesses, assets of their own and get rid of poverty once and for all. Microfinance is becoming a significant buzzword in India. Remarkable progress has been made during the last two decades in innovating techniques to deliver financial services to the poor on a sustainable basis. These loans are aimed at empowering the impoverished people to start their own businesses and to grow their money so that they can achieve long-term financial independence and develop sustainably. So, Economic growth, sustainable development and poverty alleviation can be achieved effectively with the help of an instrument like Micro finance in India. In today’s date, there are a total of 82 major microfinance companies in India. The present paper attempts to analyze the role of microfinance in the development of India and also highlights the importance, phases, delivery models, challenges in micro finance, suggestive measures for the growth of micro finance and identifying the current status in India.