Microfinance-One of the Key Drivers of Financial Inclusion

Topics: Bank, Poverty, Microfinance Pages: 15 (4403 words) Published: October 24, 2010


Shrawan Kumar Dwivedi
shrawan.sibar@gmail.com (9595302505)
Nitesh Kumar Narayan
Masarrat Ali Raj

Microfinance can be defined as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance to poor and low-income households and their micro-enterprises.Microfinance is a powerful tool for achieving higher levels of financial inclusion in economies. Microfinance is one of the key driver which affects the financial inclusion. Increased inclusion brings both efficiency and equity benefits. Microfinance is also revealing substantial commercial opportunities and attracting growing private capital flows.

Financial Inclusion is enabling of banking services at an affordable cost to the vast sections of disadvantaged and low-income groups. As banking services are in the nature of public service, provision of banking and payment services to the entire population without discrimination should be the prime objective of the public policy.

Microfinance programmes are intended to reach poor segments of society as they lack access to financial services. It seeks to reach out to the excluded category of population from the banking system. Financial inclusion is not just credit dispensation, its about connecting the people with the banking system for availing bouquet of financial services including access to payment system.

“Only 48% of indian population is accessing financial services”(According to the World Bank 2008 survey). Expansion of the micro finance sector is also important from the perspective of financial inclusion. Since 2004 the R.B.I. has also emphasized financial inclusion as an important goal. Financial Inclusion is a most useful frame of reference for considering how poverty might be reduced through provision of financial services. And micro finance remains the most potent weapon available for reducing financial exclusion.Microfinance in Indian region is growing and developing, and the possibilities for microfinance to play a significant role in an economic development are increasing. KEYWORDS:

Microfinance, Financial inclusion, Economies, Capital flows, Income group. INTRODUCTION :
Financial Inclusion is the delivery of banking services at affordable costs to vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. It is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy. The term Financial Inclusion has gained importance since the early 2000s, and is a result of findings about Financial Exclusion and its direct correlation to poverty. Financial Inclusion is now a common objective for many central banks among the developing nations. Rangarajan's committee on financial inclusion defines it as: "Financial inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost." The financial services include the entire gamut - savings, loans, insurance, credit, payments etc. The financial system has to provide its function of transferring resources from surplus to deficit units but both deficit and surplus units are those with low incomes, poor background etc. By providing these services, the aim is to help them come out of poverty. So far, the focus has only been on delivering credit (it is called as microfinance but is microcredit) and has been quite successful. Similar success has to be seen in other aspects of finance as...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Financial Inclusion Through Microfinance-Health Insurance in India Essay
  • Financial Inclusion Essay
  • Financial Inclusion Essay
  • Financial Inclusion Essay
  • financial inclusion Essay
  • financial inclusion Essay
  • Financial Inclusion Research Paper
  • Financial Inclusion Essay

Become a StudyMode Member

Sign Up - It's Free