Academic journal article International Journal of Education and Management Studies

Micro-Finance to Eradicate Poverty and Induce Sustainable Development in India

Academic journal article International Journal of Education and Management Studies

Micro-Finance to Eradicate Poverty and Induce Sustainable Development in India

Article excerpt

The rural finance policy pursued in most developing countries beginning from 1950s was based on providing subsidized credit through state controlled or directed institutions to rural segments of population. Expansion of credit coverage through state interventions was based on various theoretical assumptions. Seibel and Parhusip (1990) mention that this approach was based on the premise that rural micro-entrepreneurs are unable to organize themselves; they need subsidized credit for increasing their income and are too poor to save. Yaron, Benjamin and Piprek (1997) have traced this traditional approach in rural finance leaning heavily towards direct interventions to Keynesian influence. Under this approach, in addition to the assumptions listed above, the key problem areas visualized in rural financial markets included a lack of credit in rural areas, absence of modern technology in agriculture, low savings capacity in rural areas and occurrence of moneylenders.

These distortions and imperfections in rural credit markets were sought to be addressed through Government interventions. With difference of range and degree, most developing countries from 1950s to the 1980s were home to interventions ranging from establishing state owned financial institutions, interest rate ceiling on deposits and credit, credit subsidy, directing credit to particular sectors and nationalization of private banks.

Microfinance

The concept of microfinance revolve aroud the entire range of financial services rendered to the poor it also covers skill upgradation, entrepreneurial development that would enable them to overcome poverty. Various SHG's (Self Help Groups) and NGO's have been recognised as an entity in the microfinance concept especially in providing credit plus services. NGO's which were initially confined to the social aspects of development, were enlarged to help the poor and weaker sections of the rural society in their economic pursuits. In Andhra Pradesh, many NGO's acting as SHG's who had promoted and nurtured SHG's have been permitted to open Mutually Aided Cooperative Societies (MACS) and take care of all financial pursuits of their own SHG's and also imbibe SHG members to promote other groups.

Microfinance has a very prominent role to play in developing economy specially. Through microfinance not only urban areas can be aided but also the rural areas. The case for rural areas is of more prominence because though there are nationalised banks and private banks in urban areas but the condition is not similar in the rural areas. The majority of Indian population in which the deprived are mostly illiterate, the formal banking procedures become tough for them to understand. This in most of the cases makes them a pray to the claws of greedy money lenders, which charge them very high interest rates which are also above 10% per month and thereby they are never able to repay the debts taken.

A significant development in recent years has been the mushrooming of community-based organizations and initiatives at the local level for women. Reports indicate that self-help programmes, often in the form of savings and credit or microcredit schemes, have succeeded in changing the lives of poor women, enhancing incomes and generating positive externalities such as increased self-esteem. However, in recent years, counter-arguments have also been advanced, suggesting that there could be negative effects or that the results have not been as encouraging as previously reported. Emerlson and Moses (2011) has studied that microfinance has emerged as a catalyst of rural development sepecially in the overpopulated country like India. Sarumathi and Mohan (2011) found that microfinance brought psychological and social empowerment than economic empowerment. Impact of microfinance is appreciable in bringing confidence, courage, skill development and empowerment. Devraja (2011) has studied that India's achievement of the MDG of halving the population of poor by 2015 as wellas achieving a broad based economic growth also hinges on a successful poverty alleviation strategy. …

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