Relevance and Sustainability of Micro Finance in India
Singh, Kalpana, Madhya Pradesh Journal of Social Sciences
In the development paradigm, micro finance has become one of the promising ways to use scarce development funds to achieve the objective of poverty alleviation and to cater the so far neglected target groups. In India, both institutional and non-institutional channels exist for supply of credit in both rural and urban areas. The world over, important criteria to evaluate performance of micro-finance institutions include impact on living standard of people targeted, sustainability, reasonability of rates of interests, risk of recovery etc. This paper focuses on some of both the theoretical and practical aspects like role of micro-finance in development process, organisational structure of micro-finance in India, relative competitiveness of various micro-finance institutions etc.
Poverty alleviation has been one of the major policy objectives in most of the developing countries. In the development paradigm, micro-finance has evolved as a need-based policy and programme to cater the so far neglected target groups (women, poor, rural, deprived, etc.). Its evolution is based on the concern of all developing countries for empowerment of the poor and the alleviation of poverty (Global Envision 2006). Development organisations and policy makers have included access to credit for poor people as a major aspect of many poverty alleviation programmes.
Micro-finance refers to the provision of financial services to the poor or low-income clients, including consumers and the self-employed (Wikipedia). A good definition of micro-finance is, "micro-finance refers to small-scale financial services for both credits and deposits--that are provided to people who farm or fish or herd; operate small or micro-enterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small pieces of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries, in both rural and urban areas" (Robinson 1998). In broad terms, micro finance refers to a movement that envisions "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" (Chirsten et.al 2004).
Relevance of Micro-finance
Most poor people manage to mobilise resources to develop their enterprises and their dwellings slowly over time. Financial services could enable the poor to leverage their initiative, accelerating the process of building incomes, assets and economic security. For several decades, many economies, including the Indian, experimented with subsidised credit for the poor. But the only tangible outcome perhaps was the increase in Non- Performing Assets (NPA). Then came the realisation that the core issue for the poor was access to credit rather than the cost of credit (Srinivasan and Sriram 2003). Conventional finance institutions seldom lend down-market to serve the needs of low-income families and women-headed households. They are very often denied access to credit for any purpose.
Therefore, the fundamental problem is not so much of unaffordable terms of loan as the lack of access to credit itself (Kim 1995). The provision of micro-finance involves initiatives on the part of state and non-state organisations, in making available very small amounts of credit to poor clients.
There is an acute need among the poor for credit that often forms the deciding line between their survival and their succumbing to poverty. Credit is sought for basic requirements such as food, health, housing and education, as well as for income generation activities.
The lack of access to credit for the poor is attributable to practical difficulties arising from the discrepancy between the mode of operation followed by financial institutions and the economic characteristics and financing needs of low-income households. …