India is home to the largest population of poor in the world. Microfinance in India has emerged as a powerful tool for financial inclusion. The ‘SHG – Bank Linkage’ programme plays a predominant role in the financial inclusion of poor. The programme is coming up well and being implemented widely across the country. But there is a need to strengthen the SHG-Bank Linkage Programme to fully mainstream it with the commercial banking system. The programme is scaling up at a rapid pace in South India, while the progress in other regions is slow. The variations in performance across the regions, both in terms of reach and quality needs immediate attention.
Lack of knowledge and understanding of services and its attendant policy and processes among the poor population are important factors that impediment their financial inclusion. In other words, financial literacy is critical for financial inclusion. The vulnerable situation faced by the poor like irregular employment, unemployment, seasonality, illiteracy and growing trend of globalization also throw challenges for financial inclusion of poor. It is clear from the above that access to affordable financial services by the poor is a serious issue.
The definition for microfinance is best given by Robinson, Marguerite. ‘Microfinance refers to small-scale financial services for both credits and deposits — that are provided to people who farm or fish or herd; operate small or microenterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries, in both rural and urban areas’.
Within India the microfinance movement in Western and Southern India have received most attention, both in the media as well...