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The scope of microfinance in Indian context

Financial services already exists, but they are usually informal in nature. The shift in focus from solely income generating loans to a range of financial services is consistent with an understanding of poverty that includes vulnerability and powerlessness beyond low incomes. Microfinance provisions can give poor people the opportunity to not only protect their livelihoods from shocks, but also to build and diversify their livelihoods through the investment of debt capital.


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Monika Agarwal

6 days ago | 6 min read

Name: Monika Agarwal

Contact No.: 9817722729

LinkedIn address: https://www.linkedin.com/in/monika-agarwal-12823a226

Email address: monika.agarwal.pgdm-2022@abs.edu.in

Instagram id: http://instagram.com/goel_minii

College Name: Asian Business School

"We believe that business can be a tool for social good, microfinance has already shown that enabling the poor to empower themselves economically can be a good business."

Poverty is the constant enemy of the developing world, armed with different weapons: child mortality, hunger and disease, among others illiteracy, and child labor. The list of obstacles that poor people overcome the most seems endless. The extreme poor are mainly engaged in subsistence activities. The rural poor need money on a regular basis and, lacking reliable credit, they also use brutal loan collection methods. Then the Indian government was considering microfinance is a small financial service for the poor. The basic idea is simple: micro= very small, so microfinance is a small functional service for the poor. It is a small value financial service for a services such as loans, credits, insurance, access to savings accounts, and money transfers. The beneficiaries of these services are mostly small or low- income businesses and entrepreneurs. Microfinance benefits those who do not have access to traditional financial resources, and microcredit usually has higher interest rates than traditional personal loans.

In India, microfinance is mainly based on his two distributed through channels. This model forms 10- 15 members group made up of economically insecure women.

Objectives of microfinancing

The concept of microfinance

Microfinance is a broader concept that includes not only lending to the poor, but also the provisions of financial services such as savings, cash withdrawals, and insurance. Microfinance has three elements.

Microcredit: A small amount of money lent to a customer by a bank or other institutions. It can be offered through individual or group loans without collateral. The purpose of loans is to provide credit to those who need it.

Small Savings: These small sums of money allow poor people to save small sums of money for their future. These savings accounts often have no minimum balance requirements. Help low-income families over unexpected expenses and save to plan future investments.

Micro insurance: An economic tool featuring low premiums designed for low-income individuals not covered by typical social or commercial insurance schemes, impacting wealth and health from one place to another. It helps to reduce the risk of giving burden with family and friends.

The various models of this program prevalent in India are:

Model1: Banks- SHG Member- Supports his SHG funded directly by the bank (SHPI) and directly funds self help groups.

Model2: Banks- Facilitator Agency SHG Member - In this model, an NGO or government agency promotes and fosters his SHG, with the bank providing support.

Model3: Banks- NGOs- Microfinance Intermediaries - SHG Members - In this model, NGOs provide funding and finance SHGs.

Functioning of microfinancing

Against all odds, the microfinance sector has multiple participants and a mature microcredit model. India presents a huge opportunity for the microfinance sector as the majority of its population falls into the low income bracket. Indeed, government programs and designated financial institutions have improved access to microcredit for about 67% of India's rural population. Only about 34% of our country's microfinance countries contribute to her 80% of the country's portfolio. This suggests that microfinance may expand in different regions of the country. However, to capitalize on this growth prospect, the sector will need to identify and assess emerging needs within the industry and address them through appropriate initiatives for optimized growth. Microcredit should be able to change a borrower's journey from being a job seeker to being a job creator. As the sector evolves through improved regulation and investment flows, the need to mobilize funds to create a sustainable and profitable ecosystem for borrowers will grow. The program benefits the poor and is a source of hope for the poor. Microfinance is an alternative source of finance for people of lower socioeconomic class. The poor and needy classes who rely on moneylenders who consistently charge exorbitant interest rates can get their cash off of these moneylenders and have a more reliable option through microfinance institutions. They providing financing to microfinance organizations support a wide range of activities, from providing basics such as bank cheques and savings accounts, to seed capital for small entrepreneurs, to educational programs that teach the principles of investing. I'm here. These programs may focus on skills such as bookkeeping, cash flow management, and technical or professional skills. The purpose of microfinance is to provide adequate credit to small businesses in a secure manner an din accordance with ethical lending practices. The future of microfinance is definitely very bright. As the economy develops, demand for all consumer goods increases, benefiting microfinance lending. The microfinance industry as an industry is expected to continue to thrive, although much depends on the regulations imposed by global central banks. There is still a large demand- supply gap that will take years to close. I no longer expect triple- digit payout growth from microfinance industry, but industry will continue to grow at an average rate for years to come. The world's best private equity funds continue to invest in microfinance for stable returns and funding, unlikely to constrain growth in the years to come with strong digital savings and credit systems users can effectively and efficiently track their funds. Advances in the microfinance industry through mobile payments will empower the middle class, reduce poverty, tackle poverty collectively, empower the socially poor, address gender issues, thereby benefiting society as a whole. Having an empowering power can have a lasting impact on India. Microfinance has therefore evolved into a powerful mechanism to ensure the social and economic self- determination of the poor. The microfinance sector has seen promising growth in recent years due to the rapidly expanding Indian economy. Despite years of healthy growth, a number of sector related concerns have surfaced, including regulation, transparent pricing and low financial literacy. Lending and over - indebtedness caused by increased competition among MFIs. The industry plays a key role in providing formal credit to low income households and various micro, small and medium enterprises(MSMEs), increasing its contribution to India's overall GDP. Moreover, the size of Indian microfinance will be enormous in the coming years, despite events such as the microfinance crisis in Andhra Pradesh (2010). The main features of microfinance are, such as lending to low income households and unsecured loans, make it very popular in our country.

A focus on microfinance has focused on the needs of the poor for a range of financial services. These needs are evidenced by the use of financial services already exists, but they are usually informal in nature. The shift in focus from solely income generating loans to a range of financial services is consistent with an understanding of poverty that includes and powerlessness beyond low incomes. Microfinance provisions can give poor people, the opportunity to not only protect their livelihoods from shocks, but also to build and diversify their livelihoods through the investment of debt capital, which is also a livelihood safeguard. The role of credit in income generation has historically been the basis for NGO programs in this area. But one or two loans rarely lead to sustainable income improvements for the poor. Even if the very poor make a successful investment, an unexpected shock can quickly wipe out the gains. As such, the poorest may need to establish some degree of security before they can invest and grow. Everywhere and at all times, the financial needs of the poor are varied and depend on their individual circumstances. Some are savings for the future, some are in crisis, and some want to borrow for investment. A program with flexible services that can adapt to these different needs could be more appropriate and helpful to the poor.

Microfinance provides services to all these sectors and targeting uncovered sectors.

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