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Microfinance
Traditionally, low-income people around the world in the rural and urban area used
to borrow and save with individuals and groups outside the formal financial
system. The Concept of” Microfinance
“got the attention of the world around 1970 when
Mohammed Younus, founder of Grameen Bank of
Bangladesh took the initiative to provide small loans to poor people without any security. In 2006, Mohammed
Younus got the Nobel Peace Prize for his successful efforts to change his
vision of reducing poverty into actual reality. In India, Microfinance evolved
from the informal finance in the eighteenth century in the form of micro-lending by chit fund companies, local money lenders, merchant bankers and
traders. After Nationalization of banks in 1969, the government initiated the
Microfinance movement through branch expansion in rural areas, mandating
priority sector lending and lending through various village development schemes
like Integrated Rural Development Programme (IRDP), National Rural Employment Programme
(NREP), etc. But somehow these formal mainstream banking programmes were way
beyond the reach of the poor people due to conditionality attached to loans. At
the beginning of the 1980s, the need for alternate policies and procedures to meet
the financial requirements of the poor was recommended by NABARD. At that time-poor
people were resorting to the unorganised sector for their borrowing needs, as the
existing system were not flexible to accommodate their needs.
Thus, Microfinance in the banking sector was introduced to
safeguard the interests of poor people from the exploitation of local
moneylenders. “Microfinance is the provision of thrift, credit and other
financial services and products of very small amounts to the poor for enabling
them to raise their income levels and improve their living standards. Financial services include loans, deposits, payments transfer, insurance, etc.
In 1992, NABARD (National bank for agriculture and rural development) started a
pilot project of the self-help group (SHG)-Bank linkage Program (SBLP), which was
very successful and gave a tremendous boost to the Microfinance movement. In
India, Microfinance are offered by Small
Industries Bank of India(SIDBI), National Bank for Agricultural and Rural
Development(NABARD), Non-Banking Financial Companies(NBFC’s), Rashtriya Mahila
Kosh, Regional Rural Banks, Commercial Banks and Co-Operatives Banks. The delivery models in India are 1.
SBLP (Self-help group-bank linkage programme):
The model I: SHGs
promoted, guided and financed by banks.
Model II: SHGs
promoted by NGOs/ Government agencies and financed by banks.
Model III: SHGs
promoted by NGOs and financed by banks using NGOs/formal agencies as financial
intermediaries.
2. Microfinance Institution Approach:
i. Bank Partnership model
ii. Banking correspondents
MICROFINANCE GROWTH
AND DEVELOPMENT IN INDIA
Formal credit institutions rarely lend to the poor. That is
why it is necessary for special institutional arrangements to be made to extend
credit to the poor who do not have security to offer. Microfinance provides
small loans and savings facilities to the people who have been excluded
financially. Thus in this way, it is a key strategy for reducing poverty.
Microfinance is the financial service that is provided to low-income clients or
solidarity lending groups which include consumers and self-employed people as
they lack access to banking and related services. Microfinance goes beyond
providing microcredit to the poor. It is an economic development tool which
helps the poor to overcome poverty. Microfinance provides a wide range of
services like credit, savings, insurance and remittance and also non-financial
services like training, counselling etc.
The salient features of
Microfinance is as follows:
I. The
borrowers belong to the low-income group.
II. The
loans provided are of small amounts, they are microloans.
III. The
loans are of short duration.
IV. The loans are provided without any collateral.
V. There
is a high frequency of repayment of loans.
The loans are borrowed
for the purpose of income generation. Microcredit can be referred to as
‘programmes that provide credit for self-employment and other financial and
business services to varied persons’. It thus refers to a wide range of
financial services like savings, insurance and remittances.
1. State whether the
following statements are true or false.
a. Formal credit institutions always lend money to the poor.
b. Microfinance is a key strategy for reducing poverty.
c. Microfinance does not provide small loans and savings
facilities to the peopled. Microfinance provides small loans and saving facilities.
e. Loans are provided in Microfinance with collateral.
1.a. False b. True c. False d. true e. false
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