When was microfinance started in india

It all began when the economist cum professor Muhammed Yunus from Bangladesh began making small loans to poor families in neighboring villages in an effort to break their cycle of poverty during the countrywide famine of the s. His loans were successful in elevating the poor families, and he received timely repayment.

Unsuccessful in further self-financing the expansion of this project, he sought governmental assistance. This lead to the foundation of the Grameen bank. Yunush also received the Nobel Peace Prize in Crippling poverty is a characteristic trait of the modern Indian economy. Both the central government and state government-run multiple poverty alleviation programs.

The microfinance sector has seen sustained growth over the past few decades. What we see as a vibrant industry empowering a variety of business models today, had humble beginnings. Today, Microfinance allows the provision of financial services to low-income clients or solidarity lending groups, including consumers and the self-employed, who lack convenient access to banking and related services.

It not only helped out in eradicating poverty but also improving the standard of living. Despite the thriving growth rate, the Microfinance sector is marred by numerous ills in its functioning. Microfinance is a unique economic development tool that was introduced with an objective to assist low-income strata who aim to work their way out of poverty.

India today is underway a major policy objective shift towards financial inclusivity. Thus, Microfinance has taken centre stage for extending financial services to unbanked and underbanked sections of the Indian population.

This is why microfinance institutions serve as a better supplement to banks. Not only do they serve microcredit but also help the poor with allied financial services like savings, insurance, remittance and non-financial services like individual counseling, training, and support to start their own business in accessible ways.

What works in favour of borrowers is that all these services can be availed right at their doorstep, and borrowers are at liberty to choose their own repayment schedule. Here are a few recommendations to improve the way the Microfinance sector functions in the future:.

Unscrupulous ways of lending followed by some MFIs call for greater scrutiny and need for still stricter regulation. The core poor are too risk-averse to borrow for investing in the future. They will, therefore, benefit only to a limited extent from the microfinance schemes. The coverage of microfinance programme is low in those states where a large percentage of the population lives in poverty. The successful distribution of microfinance programmes depend on the support extended by the respective state governments, the local culture and practice, and concentration of MFIs in these states.

Borrowers are interest-sensitive, so the capacity of borrowing decreases with an increase in interest rates. Thus, high-interest rates are counterproductive and weaken the economic status of poor clients. It is also exploitative to charge very high interest rates from poor clients. The interest rates do not seem to be well-regulated in microfinance sector. Some MFIs have regulated interest rates.

However, they may impose transaction costs which increases the burden that comes with borrowing and makes it less attractive. However, these rates of interest vary with the lending conditions and policies of the MFI. The outreach of the programme is expanding but the number of loans taken remains small. The duration of the loans rarely extends over a year. The insufficient loan size and the short period of lending available, restrict borrowers from using the loans for productive purposes.

They generally use these small loans to address liquidity issues, rather than borrowing to invest. The microfinance programme has witnessed phenomenal growth in India in the last decade.

Microfinance offers a solution to small business owners, who do not have access to banking and associated services. These institutions offer services similar to that of a bank. They do charge interest on loans but the interest rate is lower than that charged by most banks in the country. They help small- and medium-sized businesses scale up with access to funds at the right time.

The evolution of microfinance in India can be traced back to the s. This is when small credit to entrepreneurs and farmers were used to help people emerge out of poverty. Microfinancing was first used in ; at the time of the development of Grameen Bank of Bangladesh.