Microfinance in India
What is microfinance?
Microfinance typically refers to a range of financial services including credit, savings, insurance, money transfers, and other financial products provided by different services providers, targeted at poor and low income people.
More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality and affordable financial services offered by a range of retail providers to finance income-producing activities, build assets, stabilize consumption, and protect against risks.
Need for micro finance
The poor, like the rest of society need money for stable daily sustenance, for improving their standard of living, to build assets and to protect themselves against risks.
However, they are often excluded from traditional financial institutions and banking services due to various reasons. Banks incur high delivery costs for relatively small transactions and since much of the low income population is located in rural areas that are geographically remote and inaccessible, the cost of operating a branch in such a location is financially unfeasible. Also, lack of collateral, lower financial capabilities, variable income streams, low literacy levels and inadequate financial knowledge act as a hindrance to borrowing from banks.
Microfinance institutions” (MFIs) commonly tend to use new methods developed over the past few decades to provide small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly. Micro finance thus seeks to fill the gap between high income and low income borrowers.
Due to lack of formal financial services, low income groups traditionally relied on local money lenders to avail credit easily. However, this money is loaned at
Microfinance typically refers to a range of financial services including credit, savings, insurance, money transfers, and other financial products provided by different services providers, targeted at poor and low income people.
More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality and affordable financial services offered by a range of retail providers to finance income-producing activities, build assets, stabilize consumption, and protect against risks.
Need for micro finance
The poor, like the rest of society need money for stable daily sustenance, for improving their standard of living, to build assets and to protect themselves against risks.
However, they are often excluded from traditional financial institutions and banking services due to various reasons. Banks incur high delivery costs for relatively small transactions and since much of the low income population is located in rural areas that are geographically remote and inaccessible, the cost of operating a branch in such a location is financially unfeasible. Also, lack of collateral, lower financial capabilities, variable income streams, low literacy levels and inadequate financial knowledge act as a hindrance to borrowing from banks.
Microfinance institutions” (MFIs) commonly tend to use new methods developed over the past few decades to provide small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly. Micro finance thus seeks to fill the gap between high income and low income borrowers.
Due to lack of formal financial services, low income groups traditionally relied on local money lenders to avail credit easily. However, this money is loaned at