Role of Microfinance Institutions in Social Development

By Jha, Srirang | Review of Management, June 2016 | Go to article overview

Role of Microfinance Institutions in Social Development


Jha, Srirang, Review of Management


Introduction

Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services (Christen, Rosenberg and Jayadeva, 2004). Microfinance institutions also known as MFIs, offer financial services to undeserved, impoverished communities and these services include savings accounts, insurance, health care and personal development (Brennan 2008). In fact, scope of work of the MFIs go well beyond providing financial services to the lowest strata of society. MFIs try to build a unique tripod of financial inclusion, livelihood sustainability through micro-enterprises and social development to empower the marginalized sections of communities across the globe. Broadly speaking, MFIs are involved in capacity building, financial literacy, livelihood promotion, preventive healthcare, education and training, water and sanitation, etc. besides their core financial functions such as micro-credits to the poor.

It is heartening to note that MFIs are active in 124 districts out of 154 districts earmarked by the government of India as backward ones (Srinivasan, 2014). Emphasising the outreach in backward areas and districts, Srinivasan (2014) observes: 'Some poor and underserved states such as Bihar, Jharkhand and Chhatisgarh have MFIs operating in all the backward districts. In Madhya Pradesh, MFIs operate in 20 out of 23 backward districts. The focus of MFIs has now clearly shifted to states such as Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh ...The southern states of Tamil Nadu, Karnataka and Kerala show high penetration of MFIs in backward districts as well, commensurate with their overall high penetration across these states'. However, it is misnomer that MFIs work only in backward states and districts. Currently MFIs operate in 28 states, 5 Union Territories and 568 districts in India (Sa-Dhan, 2015).

Indian MFIs have not only expanded their geographical outreach but also consolidated their footprints in social development arena in a big way. MFIs have made significant contributions in adding value to the lives of the poor by time-tested interventions to enhance overall quality of their life and empower them meaningfully. Some of the thrust areas vis-avis social development in which the MFIs in India are active include capacity building, financial literacy, livelihood promotion, preventive healthcare, education and training, water and sanitation, etc. In this essay, some of the significant interventions by various MFIs have been reviewed to trigger more action on the margins as well as some academic research and discourse on the theme. Table below provides an overview of how MFIs are contributing their mite towards social development and empowerment of the poor living on the fringes:

Financial Literacy

Financial literacy is one of the most important intervention programs carried out by MFIs in India. It is essential for realising the larger goal of financial inclusion. Most of the poor have little knowledge about formal financial transactions as they depend primarily on traditional money-lenders for all their financial needs and gradually slip into the vicious cycle of loantrap due to exorbitant rate of interest and corrupt practices. Knowledge of sources of finance, financial transactions, liabilities and risks involved in taking loans, rationale of repayment, savings and thrift etc. empower the poor borrowers and help them free themselves from the clutches of traditional money-lenders who have exploited them for ages.

Some of the MFIs which are actively involved in financial literacy campaigns include Annapurna Mahila Cooperative Credit Society Ltd., Annapurna Microfinance Pvt. Ltd., Aparajita Mahila Sakh Sahakari Sanstha Maryadit, Bal Mahila Vikas Samiti -VAMA, Balajee Sewa Sansthan, Bandhan Financial Services Ltd., Belghoria Jankalyan Samity, Grama Vidiyal Micro Finance Ltd., Grameen Koota Financial Services Pvt. …

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