File Name: microfinance and financial inclusion in india .zip
This report highlights the opportunities and challenges faced by microfinance lenders and suggests initiatives to be undertaken for sustainable growth. The role of Microfinance has been critical in driving financial inclusion in India. The microfinance lenders have been providing easy access to formal credit to customers particularly in semi-urban and rural geographies through a branch, business correspondent model. At the same time, the sector is also being followed closely by the regulator to ensure customer interests are protected. This report highlights the opportunities and challenges faced by the microfinance lenders and suggests key initiatives to be undertaken to sustainably continue being the torch bearers of financial inclusion in the country.
Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. Shankar Published Financial inclusion, implying expanding access to financial services to those currently not accessing them, is an important objective in many developing countries. This article analyses if microfinance institutions MFIs adequately break down barriers to financial service access in India. Two lines of enquiry were followed: the spread of microfinance penetration in the country was analyzed and field interviews of MFI field officers were conducted.
Microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services. Microfinance includes microcredit , the provision of small loans to poor clients; savings and checking accounts ; microinsurance ; and payment systems , among other services. Microfinance initially had a limited definition: the provision of microloans to poor entrepreneurs and small businesses lacking access to credit. The two main mechanisms for the delivery of financial services to such clients were: 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. Over time, microfinance has emerged as a larger movement whose object is: "a world in which as everyone, especially the poor and socially marginalized people and households have access to a wide range of affordable, high quality financial products and services, including not just credit but also savings, insurance, payment services, and fund transfers. Proponents of microfinance often claim that such access will help poor people out of poverty , including participants in the Microcredit Summit Campaign.
Microfinance concept started with the idea of providing financial services to the poor who are otherwise considered un-bankable or credit-unworthy. Modern microfinance concept revolves around the activities of the Grameen Bank which were pioneered by Nobel Laureate Dr. Mohammad Yunus. The initial success of Grameen Bank in alleviating poverty brought this concept into the global limelight and has led to micro-finance being populated as a panacea for poverty and under-development across the world. The basic principle of microfinance is that a group of individuals is more bankable than a single individual. The main aspect of micro credit is that the loan is given without the requirement of any collateral security and the lender has nothing to fall back on, other than the intangible assurance of the borrowing group.
Finance can be a glue that holds all the pieces of our life together. It enables money to be in the right place at the right time for the right situation. To borrow and save is to move money from the future to the present, or from the present to the future. Ideally, we would never have to think about finance. It would be seamless, operating in the background. It would allow us to invest and consume exactly as we deem optimal, given all the other constraints that we have in life. For finance to work this way, four conditions need to be in place: enforceability of contracts, an absence of transaction costs, perfect competition, and fully rational consumer behavior.
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There is also a case for skill based training to enable greater access to MFI membership. Keywords: Micro finance, Financial inclusion, India, Micro credit, Banking.
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