MICRO FINANCE:
- Provisioning of financial services to the marginalised who are un-bankable.
- National Bank for Agriculture and Rural Development (NABARD) took this idea and started the concept of microfinance in India.
- There are two models in India that link the formal financial sector to low-income households in India, namely SHG and MFI bank linkage programme.
SHG model:
It works on the principle of directly financing of SHG by the banks and
MFI model:
It covers financing of Micro Finance Institution (MFIs)
by banking agencies for the purpose of lending the same amount to SHG’s and
other small borrowers.
Concept of Microfinance Institutes in India :
- Microfinance in India finds its roots in the early 1970s’ in Gujarat when the Self Employed Women Association (SEWA) was formed to provide banking services to the poor women of unorganized sector.
- Program linking the Self Help Group to the banking sector was initiated in India in 1989, under NABARD.
- Various schemes introduced by the present government like Micro Units Development and Refinance Agency (MUDRA) bank and Jan Dhan Yojna has aided in the growth of the micro finance institutions. Both of them target the same poor segment of the society.
The major factors that have fuelled the growth of micro finance in India are:
· Rapid growth in the Business Correspondent (BC) model, opportunity.
· Introduction of differentiated bank license and opportunity.
· Rising participation of the current central government in financial inclusion
· Micro finance institutions in India are expanding with time due to the financial benefits provided to the unprivileged people of the country.
Issues in Micro Financing in India:
- High interest rates,
- No variety in the products offered to the customers and
- Lower risk mitigation measures
- Urban poors are not covered
- Poor credit appraisal system,
- Lack of awareness,
- poor debt management
- weak loan collection system
- High Non-Performing Assets (NPAs),
Despite the disadvantages they form a very important part of the functioning of many industries due to easy loans given to those who otherwise cannot afford better facilities.
