Page - 1

Introduction

Microfinancing is the provision of financial services to poor and low income households without access to formal financial institutions.
As defined by the Asian Development Bank (ADB), it is - A provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and their micro-enterprises. In the late 90s, numerous agencies involved in micro-financing operations in India started adding other financial services, including micro-insurance to its micro-finance operations.

The situation of micro-financing in India has thereby improved with certain steps taken by the government and now, the private players, banks etc as well.

Need for Micro - Financing

Since independence, various governments in India have experimented with a large number of grant and subsidy based poverty alleviation programmes. These programmes were based on grant/subsidy and the credit linkage was through commercial banks only. As a result, these programmes became unsustainable, perpetuated a dependant status on the beneficiaries and depended ultimately on the govt. employees for delivery. This not only led to misuse of both credit and subsidy but banks never looked at it as a profitable and commercial activity as well.

Hence was adopted the concept of micro-credit in India. Success stories in neighboring countries, like Grameen Bank in Bangladesh, Bank Rakiat in Indonesia, Commercial & Industrial Bank in Philippines etc, gave further boost to the concept in India in the 1980s. India thus adopted the similar model of extending credit to the poorest sector and took a no. of steps to promote micro-financing in the country.

Types of Organizations and Composition of the Sector

Microfinance providers in India can be classified under three broad categories: formal, semiformal, and informal.

Next

* Contributed by: -
Varun Ahuja,
Student Manager,
MBA (IB) - Finance,
Institute of Management Technology (IMT), Ghaziabad.