The Role of Microfinance in India and Challenges Faced by IT

Abstract

NABARD (National Bank for Agriculture and Rural Development) has defined microfinance as the provision of thrift, credit, and any other type of financial services and products of very small amount basically for the poor people in rural, semi-urban or urban areas and this provision is for enabling these people to raise their level of income and standard of living. Microfinance is a range of financial services which helps small scale entrepreneurs as access to banking and other related services for them is quite difficult. Poverty eradication is the main objective of microfinance as it assists the poor and thus helps in poverty eradication and by helping the poor it also helps in boosting the economy and strengthening the financial sector. The main service provided by microfinance is microcredit, but it also provides other wide range of services which includes insurance, savings, remittance, and non-financial services like training, counselling, etc. Microfinance sector helps in business development and thus it is regarded as one of the important pillars of the economy in modern times. Microfinance has emerged as a larger movement whose object is ‘a world in which everyone, especially the poor and socially marginalized people and households have access to a wide range of affordable, high-quality financial products, and services, including not just credit but also savings, insurance, payment services, and fund transfers. For instance, in Bangladesh, only microfinance has benefitted around 15 million families by providing micro credits to them and other facilities such as micro-savings and micro-insurance and all this have also resulted in about 40% reduction in the rural poverty. In the light of this background, this paper will majorly focus on microfinance and its role in the modern financial industry, the role of government in strengthening microfinance and how microfinance is helping the MSMEs (Micro, Small and Medium Enterprises) in India.