What Is Micro Finance?
Micro finance is defined as providing micro loan to poorest of the poor (basically those are neglected by banks, microfinance provides them loan facility), and a source of financial services for entrepreneurs and small businesses lacking access to banking and related services.
The two main mechanisms for the delivery of financial services to such clients are:
(1) relationship-based banking for individual entrepreneurs and small businesses; and
(2) group-based models, where several entrepreneurs come together to apply for loans and other services as a group.
In some regions, for example Southern Africa, microfinance is used to describe the supply of financial services to low-income employees, which is closer to the retail finance model
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In India, micro finance is provided by a variety of entities. These include banks (including commercial banks, RRBs and co-operative banks), primary agricultural credit societies, SHGs linked to banks and MFIs that include NBFC, Section 25 companies, trusts and societies as also co-operatives (under MACS).
SIDBI’s Role in Micro Finance: The Micro Credit Scheme of SIDBI was launched in February 1994 with the objective of providing revolving fund assistance to select well managed Non-Governmental Organisations (NGOs) for on lending to the poor for setting up micro enterprises. Small amounts of grants were also given to the NGOs for their capacity
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With this, the long-awaited Bill on MFIs would not come and some of its provisions would be incorporated in the Bill on MUDRA, Adhia added. It will also put in place entire mechanism as to how much interest rate can be charged for micro sector, he said. The issue had become quite contentious after the MFI sector had faced tough time, particularly in Andhra Pradesh when the state government tightened the noose on MFIs for recovery of loans in the wake of over- indebtedness of the loanees.
On whether MUDRA would regulate the NBFC (MFI), Adhia said, That decision would be taken when the Bill will be framed. He added the government was yet to take a call on whether MUDRA would be transformed into a universal bank. The government can decide to make it a policy bank like NHB (National Housing Bank) or it can decide to make it a universal bank, he
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