MICROFINANCE

Microfinance is the service offered to low and moderate income household, including the provision of credit, and also in some cases insurance called micro-insurance.

See finance is life and blood of any economy. Finance is more significant than other factors of production and livelihood because it caters to the needs of the rural population, which is 70 % of India’s total population, and which is poverty stricken.

In India, banks provide microfinance through Self Help Group (SHGs) and Non Governmental Organisations (NGOs). Presently, there are more than 2 million SHGs in the world. According to some estimate, there are approximately 3100 Microfinance Institutions (MFIs) worldwide, with over 80 % of its members as women. Because women are considered more credit worthy and benefit more from these institutions. Apart from a bread winner, if woman of a family can also contribute in generating a livelihood, then it greatly helps in raising the standard of living as well as an earning woman can take care of her children better.

Grameen Bank Model

The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, Head of the Rural Economics Program at the University of Chittagong, launched an action research project to examine the possibility of designing a credit delivery system to provide banking services targeted at the rural people. He also got the nobel prize for his achievements. At GB, credit is a cost effective weapon to fight poverty and it serves as a catalyst in the over all development of socio-economic conditions of the poor who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. The success of GB is based mutual trust, accountability, participation, and creativity among stakeholders. The model ensures that the needy get the required finance, irrespective of their financial status, based on their potential to generate additional income by putting the money to productive use. GB gives priority to women than men. This can be proved from the fact that around 96 % of its borrowers are women.

Key Features of GB are :-

1. The total interest on a loan never exceeds the loan amount regardless of the duration of non-payment of the loan.

2. If the interest amount equals the principal amount, no interest is charged thereafter.

3. Customers are charged simple interest in GB, unlike in other banks where customers are charged interest.

4. In case of death of a borrower, the borrower’s family is not required to repay the loan to GB. There is a built-in insurance programme that pays off the entire outstanding amount with interest. Therefore no liability is transferred to the deceased’s family.

GB has influenced the growth of the microfinance sector in India.