Microfinance and Its Growth

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  • Topic: Poverty, Microfinance, Loan
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  • Published : December 11, 2012
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Microfinance and its Growth

Authors :Sangeetha D , Assistant Professor MBA – SNMV College of Arts and Science

Abstract

A country’s progress is measured in terms of its social indicators. India being a developing country, the social parameter becomes even more relevant. The direct measures of economic growth not only depend on the financial measures but also on parameters like absolute poverty, infant mortality, and myriads of social indicators. Inclusive growth involves bringing in the entire society under the ambit of growth engine. From independence pockets of growth has been a major concern for a hugely populated India. Though the economic growth has been robust in post liberalization it has been limited to middle and upper class predominantly. The lower stratum of society has been left alone wondering whether the country is really shining.

Access to capital has been a major blockade for millions of people below poverty line, due to access to the banking network. Money lenders and landlords have exploited the circumstances and have thrived on the helplessness of many. This is where the concept of micro finance assumes greater importance. The noble winning concept of micro finance has come in handy for people even in remote villages. Reserve Bank of India has promoted micro finance institution to play a major role in the development of remote villages.

Micro finance institution has its own draw backs also. The tightening interest rates and operating profitability concerns has lead many institutions to zoom up the interest rates and this has lead to default from many customers. Coercive practices used by collection agents and other unethical practices in this sector has forced the government, reserve bank and media to keenly observe this sector

Key Words : Micro finance , Financial Inclusion , Social Indicators

Introduction

It has been approximately 25 years since the birth of Microfinance with the Founding of the Grameen Bank in Bangladesh by Professor Mohammad Yunus. The UN Year of Microcredit in 2005 indicated a turning point for Microfinance as the private sector began to take a more serious interest in what has been considered the domain of NGOs. Microfinance Institutions (MFIs) in India exist as NGOs (registered as societies or trusts), Section 25 companies and Non-Banking Financial Companies (NBFCs). Commercial Banks, Regional Rural Banks (RRBs), cooperative societies and other large lenders have played an important role in providing refinance facility to MFIs. Banks have also leveraged the Self-Help Group (SHGs) channel to provide direct credit to group borrowers.

India

Economy

Home to 1.1 billion people as of 2004, India constitutes approximately one sixth of the world’s total population. It is the world’s largest democracy and a key emerging market alongside China and Brazil. India is the world’s tenth largest economy with a gross domestic product in 2004 of US$692 billion as reported by the World Bank. The country’s growth is also strong, with real GDP growing in by 6.9% in 2004/2005 and exports growing by 105% during the same period2. The picture presented shows an environment where wealth is increasing for the nation but it is not accruing to all citizens.

Microfinance is one development approach that can contribute to achieving the national and international goal of improving the livelihoods of those Indians that are not yet seeing the benefits of growth

Poverty

Part of understanding the costs and benefits of various organizational forms of MFIs, involves understanding the overarching goal that motivates most MFIs: poverty reduction. The way microfinance impacts overall poverty reduction in a given country is then shaped by the nature of poverty in that country. India has over a quarter of its population below the poverty line.

Review of Literature:

To the extent that microfinance institutions become financially viable, self...
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