Microfinance

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IRACST - International Journal of Computer Science and Information Technology & Security (IJCSITS), ISSN: 2249-9555 Vol. 2, No.4, August 2012

Performance of Microfinance Institutions in
India
M. Radhakrishna
Adhoc faculty School of Management, NIT Warangal
Abstract: Microfinance can be described as
an umbrella under which financial services
including micro credit are provided to the
low income group. The need for the
unfolding of microfinance began in the
developing nations more than thirty years
ago. Microfinance refers to small scale
financial services for both credits and
deposits that are provided to people, who
farm, operate small or micro enterprise
where goods are produced, recycled,
repaired, or traded. Microfinance playing an
important role in developing the rural areas
by providing loans to people at lower
interest. The present research paper
describes the role of Microfinance
institutions in developing the conditions of
people who are living in rural areas.
Key words: Microfinance, Rural, Interest
and loan.
INTRODUCTION
Microfinance can be described as an
umbrella under which financial services
including micro credit are provided to the
low income group. The need for the
unfolding of microfinance began in the
developing nations more than thirty years
ago. Microfinance refers to small scale
financial services for both credits and
deposits that are provided to people, who
farm, operate small or micro enterprise
where goods are produced, recycled,
repaired, or traded.
The aim was to provide resources to help the
poor to attend self sufficiency. They had

neither
resourced
nor
employment
opportunities to be financially independent,
let alone meet the minimal consumptions
needs.
Microfinance revolution in India as a
powerful tool for poverty alleviation and
women empowerment. Where institutional
finance failed microfinance delivered, but
the outreach is too small.
Overview of microfinance in India
The micro finance sector in India has
developed a successful and sustainable
business model which has been able to
overcome challenges traditionally faced by
the financial services sector in servicing the
lower income population.
In India, institutional credit agencies (banks)
made an entry in rural areas initially to
provide an alternative to the rural money
lenders who provided credit support, but not
without exploiting the rural poor. There are
three main factors that count to the bringing
up of Microfinance as a policy in India.
The first of these pivotal events was Indira
Gandhi’s bank nationalization1 drive
launched in 1969 which required
commercial banks to open rural branches
resulting in 15.2 increase in rural bank
branches in India between 1973 and 1985,
Today, India has over 32,000 rural branches
of commercial banks and regional rural
banks, 14,000 cooperative bank branches.
The second national policy that has had a
significant impact on the evolution of

809

IRACST - International Journal of Computer Science and Information Technology & Security (IJCSITS), ISSN: 2249-9555 Vol. 2, No.4, August 2012

India’s banking and financial system is the
Integrated Rural Development program
(IRDP) introduced in 1978 and designed to
be ‘a direct instrument for attacking India’s
rural poverty.’ The last major event which
impacted the financial and banking system
in India was the liberalization of India’s
financial system in the 1990s characterized
by a series of structural adjustments and
financial policy reforms initiated by the
Reserve Bank of India (RBI).
The microfinance business model in India
typically generates a Return on Equity
(ROE) OF between 20% and 30%, driven by
financing from commercial banks, strong
operating efficiency and high portfolio
quality.
Micro Finance Service Providers
The microfinance service providers include
apex institutions like National Bank for
Agriculture and Rural Development
(NABARD),...
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