Roles Of Microfinance In India

Executive Summary

In a country like India where 70 percent of its population lives in rural area and 60 percent depend on agriculture (according to the World Bank reports), micro-finance can play a vital role in providing financial services to the poor and low income individuals. Microfinance is the form of a broad range of financial services such as deposits, loans, payment services, money transfers, insurance, savings, micro-credit etc. to the poor and low income individuals. The importance of micro-finance in the developing economies like India cannot be undermined, where a large size of population is living under poverty and large number of people does not have an access to formal banking facilities. The taskforce on Supportive Policy and

Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance to the poor and low income households and their microenterprises. Microfinance is defined as Financial Services (savings, insurance, fund, credit etc.) provided to poor and low income clients so as to help them raise their income, thereby improving their standard of living. The Asian Development Bank (2000) defines microfinance as the provision of broad range of services such as savings, deposits, loans, payment services, money transfers and insurance to poor and low income households and their micro-enterprises. This definition of microfinance is not restricted to the below poverty line people but it includes low income households also. The taskforce on Supportive Policy and Regulatory Framework for Microfinance constituted by NABARD defined microfinance as “ the provision of thrift, saving, credit and financial services and products of very small amount to the poor’s in rural, semi urban and urban areas for enabling them to raise their income level and improve their standard of living.” (Sen,

It is an essential part of rural finance

2. It deals in small loans.

3. It basically caters to the poor households.

4. It is one of the most effective and warranted Poverty Alleviation Strategies.

5. It supports women participation in electronic activity.

6. It provides an incentive to grab the self-employment opportunities.

7. It is more service-oriented and less profit oriented.

8. It is meant to assist small entrepreneur and producers.

9. Poor borrowers are rarely defaulters in repayment of loans as they are simple and God-fearing. Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients. Micro credit and micro-finance both are different. Micro credit is a small amount of money, given as a loan by a bank or any legally registered institution, whereas, Micro-finance includes multiple services such as loans, savings, insurance, transfer services, micro credit loans, etc. for poor people.

Growth trends of Micro finance in