MICROFINANCE

Ms Divya Joshi
Mr Samir Thakkar

Abstract

Microfinance it is a movement whose object is "a world in which as many poor and near-
poor households as possible have permanent access to an appropriate range of high
quality financial services, including not just credit but also savings, insurance, and fund
transfers. Microfinance is a broad category of services which include microcredit
(Microloans), Micro savings, Micro-Insurance. The goal of microfinance is the
alleviation of poverty. As the poor have no choice but to take loan for consumption and
income generation from money lenders that charge exploitative rates of interest. This can
put the poor in a debt trap. If poor people can access loans with fair interest rates, they
could break out of the cycle of poverty. Bureaucracy, corruption, illiteracy and
challenging logistics prevent the poor from accessing loans from banks and the
government.

India has huge potential in terms of microfinance. But it contain barriers like high cost,
few sources of capital, lack of customize solution, poor distribution system, dual mission,
lack of awareness etc.

MFI works on two model i.e. MFI model and self group linkage model.

MFIs started as not-for-profit organizations like NGOs (non-governmental

organizations), credit unions and other financial cooperatives, and state-owned
development and postal savings banks. An increasing number of MFIs are now organized
as for-profit entities, often because it is a requirement to obtaining a license from banking
authorities to offer savings services. For-profit MFIs may be organized as non-bank
financial institutions (NBFIs), commercial banks that specialize in microfinance, or
microfinance departments of full-service banks.

Financial services, particularly credit, are not appropriate for all people at all times. For
loans that will be used for business purposes, microcredit best serves those who have
identified an economic opportunity and can capitalize on it if they have access to a small
amount of ready cash. Regardless of how loans are used, MFIs can provide long-term,
stable credit access only when clients have both the willingness and ability to meet
scheduled loan repayments.
 MICROFINANCE
Ms Divya Joshi
Mr Samir Thakkar

Microfinance is particularly inappropriate for the destitute, which may need grants
or other public resources to improve their economic situation. Most MFIs are still
unprofitable, especially if one includes the many small MFIs that do not report to the
international databases.

Micro finance contain barriers like high cost, few sources of capital, lack of customize
solution, poor distribution system, dual mission, lack of awareness etc. As MFIs are at
introduction stage in India corporate may take the advantage of the First mover and
generate many innovations.