Meaning of micro finance

Microfinance refers to the financial services provided to low-income individuals or groups who

are typically excluded from traditional banking. Most microfinance institutions focus on offering
credit in the form of small working capital loans, sometimes called microloans or microcredit.
Microfinance aims to improve financial services access for marginalized groups,
especially women and the rural poor, to promote self-sufficiency.
Micro finance as per NABARD
NABARD has defined microfinance as "provision of thrift, credit and other financial services
and products of very small amounts to the poor in rural, semi urban and urban provided to
customers to meet their financial needs; with only qualification that (1) transactions value is
small and (2) customers are poor."
Two objectives of micro finance
1.Microfinance is a tool for the empowerment of poor women
Women make up a large proportion of microfinance beneficiaries. Microfinance provides
women with the financial backing they need to start business ventures and actively participate
in the economy. It gives them confidence, improves their status and makes them more active
in decision-making, thus encouraging gender equality.
2. Microfinance targets the poor rural and urban households
The poor acquire loans through informal system which comes at a higher cost. Furthermore,
banks have not traditionally viewed poor people as viable clients and often will reject them
due to unstable credit or employment history and lack of collateral. Micro finance dismisses
this by providing small loans with a short repayment period, this inculcates a habit of savings
and Microcredit loans give clients just enough money to get their idea off the ground so they
can begin turning a profit. 
‘‘micro finance is costly’’

SEWA bank
SEWA (Self-Employed Women's Association) Bank was established in 1974 with 4000
members each contributed Rs.10 as share capital. The bank is owned by the self-employed
women as shareholders; policies are formulated by their own elected Board of women workers.
The Bank is professionally run by qualified managers accountable to the Board. SEWA provides
Supportive services like savings and credit, health care, childcare, insurance, legal aid, capacity
building and communication services are important needs of poor women.
micro finance different from micro credit
Micro Credit
Microcredit includes all types of loans that
financial institutions, such as banks and
insurance companies, provide to poor or
unemployed individuals.  term. Microfinance institutions usually
 Microcredit not only increases the income
level of the poor people but also raise their
living standard. It provides the financial
assistance to the extreme poor class of people
in rural areas to help them become self-
employed rather than depending on loan
sharks for raising finance who
charge exorbitant interest rates.
Micro Finance
Microfinance is a financial practice that
helps improve living conditions for the poor
and unemployed in the short term and long
provide microcredit services.
Microfinance plays a revolutionary role in
any country’s economy. It helps the poor
people to fulfil their basic needs and
safeguard them from any risks. It raises the
per capita income. It encourages women
empowerment by providing term economic
assistance and hence advocates gender
equality.

ACCION
ACCION was founded in 1961 to empower the poor with the knowledge and tools to improve
their lives. ACCION is a global nonprofit organization committed to creating a financially
inclusive world, with a pioneering legacy in micro finance and fintech impact investing.
ACCION have worked to empower people who are underserved, revolutionizing financial
services to the under privileged. over time ACCION has helped small business and communities
to thrive and grow. It extended its help to India establishing a Center for Financial Inclusion
(CFI) which focused on advancing the commercial model of microfinance while upholding the
interests and needs of poor clients worldwide.
SHG federation
Self-help groups (SHGs) are small groups of five to twenty people (especially from rural areas)
who are in the same income category who pool their resources and individual savings together.
However, SHGs are small in size and are limited in the types of financial services they can
provide so the need arises to scale them together, so the federation od SHG was formed which
brings several SHGs together, it has more than 1000 members. In federated SHG model, there is
a three-tier structure – the basic unit is the SHG, the middle tier is a cluster and the topmost unit
is an apex body, which represents the entire SHG. At the cluster level, each SHG is represented
by two of its members. The representatives of each SHG meet regularly.

Growth and development of micro finance in India

Microfinance has emerged as an needful program to cater to the needs of the most underprivileged
people . The major concerns today is ever increasing poverty and there is urgent need of empowering
enabling the most neglected sections of the society through organized support to all poverty alleviation
programs.
Phase I: Early 1900s – 1969

The earliest phase of Indian Microfinance can be described from early 20th century until 1969, when
credit cooperatives largely dominated as an institution in provision of microfinance services. This phase
began with passing of Cooperative Societies Act 1904, to extend credit in Indian villages under
government sponsorship. However, not much was achieved until independence when credit
cooperatives were chosen by the government as an institutional mechanism for delivering credit to the
farm sector. Whereas, commercial banks had very low presence in the rural areas and commercial banks
were in the private sector and political imperative of the time did now allow government to provide an
appropriate set of incentives to commercial banks to venture into the rural areas. In such a situation,
cooperatives were the only option given their spatial spread and penetration in remote areas. However,
rural cooperatives were riddled with problems. With large scale failure of credit cooperatives the stage
was set for some fundamental changes in microfinance institutional delivery.

Phase II: 1969 – 1991

The nationalization of Banks in 1969 along with a strong political emphasis towards poverty eradication
led to a new rural finance policy that was directed at reducing the lending imbalances in particular
sectors. In addition to this State led large scale program, some civil society organizations successfully
experimented with microfinance models that were more appropriate for the needs of poor households.
Some prominent example of this are SEWA Bank(Ahemedabad), Annapurna Mahila Mandal (Mumbai),
and Working Women’s Forum (Chennai). The first Self Help Groups (SHGs) started emerging in the
country in 1980s as a result of NGO activities such as MYRADA. In 1984-85 MYRADA started linking SHGs
to banks, when the SHGs’ credit needs increased and the groups grew large enough for the bank to have
transactions with. SHGs idea was taken up on a large scale later by NABARD scaling up Indian
Microfinance to new heights.

Phase III: 1992 – 2000

An important development in this phase was SHG Bank linkage program by NABARD which greatly
increased banking system outreach to otherwise unreached people and initiated a change in the bank’s
outlook towards low-income families from beneficiaries to customers. The pioneering initiatives of
MYRADA mentioned earlier, the SHG–Bank linkage program was scaled-up on a large scale by the
NABARD in the year 1992 by giving guidelines to banks for financing SHGs through the banking system.
With the success of this program RBI in 1996 took the policy decision to include financing to SHGs as a
mainstream activity of banks under their priority sector lending. Since then the banking system
comprising public and private sector commercial banks, regional rural banks and cooperative banks has
joined hands with several organizations in the formal and non-formal sectors to use this delivery
mechanism for providing financial services to a large number of poor. This period also witnessed the
entry of another set of stakeholders Microfinance Institutions (MFIs), largely of non-profit origins, with
existing development programs. International success of Microfinance in Bangladesh, Indonesia and in
Latin America also influenced the thinking in Indian Microfinance towards commercialization.

Phase IV: 2000 – today

Since 2000, the microfinance sector saw some radical changes in many aspects. While the prime
objective remains poverty alleviation with new terms of inclusive growth or financial inclusion, sector
moved from sole social return approach to double bottom line approach of social and financial returns.
This change in approach led to many changes in the functioning of microfinance. Today's MFIs,
particularly those which were founded after 2000, look and think differently from those of the 1990s.
Many of these “second generation” MFIs are promoted by entrepreneurs with mainstream corporate
experience. Today, MFIs relate better to the market and see themselves as businesses in the financial
services space, catering to an untapped market segment while creating value for their shareholders. This
overriding shift in orientation from development to social entrepreneurship has brought about changes
in institutions' legal forms, capital structures, sources of funds, growth strategies, and strategic alliances.
The government has recognized the microfinance as important player towards achieving Financial
Inclusion.

Role of micro finance in rural development