Micro Financing in India

By- Kanika Nainwal

Research Scholar
Faculty of Commerce
Introduction
Definition of Microfinance
 Small-scale financial services provided to low-income individuals or
groups.
 Includes credit, savings, insurance, and other financial products.

Purpose of Microfinance
 Promote financial inclusion.
 Empower economically disadvantaged populations.

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Historical background
Early Beginnings: The concept of microfinance in India began with the formation
of informal savings groups in the 1970s.
1980s and 1990s: The formalization of microfinance began with the National Bank
for Agriculture and Rural Development (NABARD) launching the SHG-Bank
Linkage Program in 1992, encouraging banks to lend to SHGs.
2000s Onwards: The microfinance sector saw significant growth with the
emergence of specialized Microfinance Institutions (MFIs) and increased
participation from non-governmental organizations (NGOs) and commercial banks.

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Current Landscape
Major Microfinance Institutions (MFIs)
Bandhan Bank
Bharat Financial Inclusion Limited (formerly SKS Microfinance)
Ujjivan Financial Services
Government Initiatives
Pradhan Mantri Jan Dhan Yojana (PMJDY)
Pradhan Mantri Mudra Yojana (PMMY)
Target Audience
 Primarily serves low-income populations, including rural
and urban poor, small farmers, artisans, and micro-
entrepreneurs.
 Focus on women, as they are often more financially
excluded and can drive significant social and economic
change when empowered.

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 Financial Products
 Microcredit: Small, collateral-free loans designed to support
entrepreneurship, small business ventures, and immediate financial
needs.
 Savings: Products that encourage the poor to save small amounts
regularly, providing them with financial security.
 Insurance: Affordable insurance products that cover health, life, and
assets, mitigating the financial impact of unforeseen events.
 Remittance Services: Facilitating the transfer of money, especially for
migrant workers sending money back to their families.

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Microfinance Models in India
 Self-Help Groups (SHGs)
 Group-based approach with 10-20 members.
 Joint savings and credit activities.
 Joint Liability Groups (JLGs)
 Group lending model where members collectively ensure loan
repayment.
 Grameen Model
 Inspired by Bangladesh's Grameen Bank, focusing on small, collateral-
free loans primarily to women.
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Impact on Society

Economic Empowerment
Facilitates entrepreneurship and job creation.
Increases household income and financial stability.
Social Benefits
Enhanced access to education and healthcare.
Promotes gender equality and women's empowerment.
Challenges and Criticisms
HighDisney
Walt interest rates.
Risk of over-indebtedness among borrowers.
Regulatory and operational challenges.
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Regulatory Framework
Reserve Bank of India (RBI) NABARD

 Plays a critical role in

 The central regulatory body for promoting microfinance and
MFIs, ensuring fair practices developing models like the
and financial stability. SHG-Bank Linkage
Programme.

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Summary
Microfinance in India is a powerful tool for financial
inclusion and poverty alleviation, driving economic
and social development. While the sector has made
substantial progress, ongoing innovation and
effective regulation are essential to address
challenges and harness its full potential.

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Thank you
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