ROLE OF MICROFINANCE INSTITUTIONS IN RURAL DEVELOPMENT

Microfinance stands as one of the most promising and cost effective tools which fight against global poverty. The findings from this study suggests that there is rise in the history and perspectives of rural credit in India in form of microfinance and there is need for improved governance to manage challenges for future so that socioeconomic growth is possible. The present paper discusses conceptual framework, development process, growth of SHG linked microfinance programme, types of micro finance services and developmental role of these institutions in rural India. It also focuses on the status of microfinance and provides some policy framework to meet the challenges faced by Indian microfinance. The article traces that the evolution of the microfinance revolution in India as a powerful tool for socioeconomic development in rural India.

The basic assumption of this paper is that rural development in India should not be seen as a package of specific needs but as a transformation of rural life and conditions of the country. In this paper, it is assumed that the term rural development means the overall development of rural areas on a sustainable basis. In this background, the paper attempts to explain the link between the microfinance services and rural development. The paper also argues that microfinance is not a magic bullet for poverty reduction and rural development in India. The paper which is conceptual in nature is totally based on secondary data.

More than subsidies poor need access to credit. Absence of formal employment make them non `bankable'. This forces them to borrow from local moneylenders at exhorbitant interest rates. Many innovative institutional mechanisms have been developed across the world to enhance credit to poor even in the absence of formal mortgage. The present paper discusses conceptual framework of a microfinance institution in India. The successes and failures of various microfinance institutions around the world have been evaluated and lessons learnt have been incorporated in a model microfinance institutional mechanism for India.

Informal sector lenders remain a strong presence in rural India in terms of providing credit facilities in rural India. Farmers and rural poor borrowings from Money lenders and other informal sources of rural credit still significant this sources some extent i.e. 77 percent to 32 percent. In this situation micro finance has emerged as an alternative source of rural credit, microfinance programmes has providing all kinds of banking services, it includes loans, thrifts and insurance services. Sometimes it is working more than financial institutions. In addition to providing financial services MFIs typically provide information related to basic education, health, hygiene, child immunization, disease prevention and environment surely one cannot deny the role of microfinance in poverty reduction as it raises income and consumption of poor households. Around the world 128 million people were received microcredit. The growth of microfinance borrowers in the context of India consist of two dominated models SBLP and MFIs increases from 48.0 to 93.9 million in between 2006-2011years. Major findings of this study explore the relationship between rural credit and microfinance instead of non-institutional sources of rural credit. The impact of microfinance on burden of rural debt is declined sharply, especially moneylenders and other non-institutional contribution in terms of lending to farmers, poor and women borrowings is going to downwards. Well managed and regulated microfinance programmes (particularly rate of interest, forced recovery of microcredit loans) augmented rural sector employment, productivity of non-agriculture sector, establishment of MSMEs, empowerment of women in socioeconomic aspects, it enhances health and educational facilities. Another important impact of microfinance programmes is that reduction of income and consumption disparities, especially vulnerable sections of the society will get the benefits from collateral or guarantee free. Microfinance programmes implies that the consumption pattern, it encourages from non-productivity expenditure to productive expenditure because of timely repayments of loans.

International Journal of Social Science and Economic Research, 2025

Formal credit institutions face the problem of lenders risk in the absence of any collateral, problems of targeting, screening, monitoring and ensuring productive usage of loans along with high transaction cost. Hence, a large section of the rural poor has to remain outside the purview of formal sector lending. It is forced to depend upon non-institutional sources of credit like moneylenders, landlords, employers, friends and relatives, who often charge exorbitant interest rates. Thus, large scale indebtedness and poverty among rural people often stems from this rising dependence on informal lending institutions. Hence, microfinance can play an important role as there is a crucial need to make credit an integral part of poverty alleviation programme.

International Journal of Innovative Technology and Exploring Engineering, 2019

Growth of a nation does not refer to the development of infrastructure, innovations and technology. In fact it is truly associated with the development of all citizens in terms of their standard of living. A country travels in development path if all the people are caught up in the process of growth and enjoy quality of living by accessing to basic facilities of life such as food, clothing, housing, health, clean water, education, employment and good natural and social environment. It all happens when economy is sound and have consistent growth rate. In our country the economic growth rate is directly depends on the development of rural areas as it is the backbone to the economy. Providing financial support to rural people is a Hercules task as they do not maintain any formal and necessary documents, failing which banks or any other financial institutions do not grant even a single penny. In this connection, Microfinance and Microcredit institutions helps the people in rural areas w...

Microfinance term is used as a source of financial services for poor and self-employed who lacking access to conventional formal banking institutions. The two main mechanisms for the delivery of financial services are: (1) relationship-based banking for individual poor and small businesses; and (2) group-based models, where several entrepreneurs come together to apply for loans. More broadly, it is a movement whose object is "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. India, has largest population in the world after China. Around 70 percent of its population lives in rural areas and more than 55 percent still depend on agriculture and allied activities. As a result, there is chronic unemployment and per capita income is relatively low in rural areas. Rural people have very low access to institutional sources of credit. Microfinance has been one of the effective tools amongst many for poverty alleviation programmes. However, it should be used with caution despite recent claims, the equation between microfinance and poverty alleviation is not straight-forward, because poverty is a complex phenomenon. We need to understand when and in what form microfinance is appropriate for the poorest; the delivery channel, methodology and products offered are all interlinked. Access to formal banking services is difficult for the poor. The main problem before the poor when trying to acquire loans from formal financial institutions is the demand for collateral security. In addition, the process of acquiring a loan entails many bureaucratic procedures, which lead to extra transaction costs for the poor. Formal financial institutions are not motivated to lend money to them. In general, formal financial institutions show a preference for urban over rural sectors, large-scale over small scale transactions, and nonagricultural over agricultural loans. This paper attempts to analyze the growth of microfinance sector, its role in poverty alleviation. It also focuses on the structure and pattern of SHG 'Parivartan' in urban Alwar district of Rajasthan along with the issues and challenges faced by microfinance institutions followed by remedial observations and conclusion.

International Journal of Research -GRANTHAALAYAH, 2019

The dynamic development of the microfinance business has been advanced by market powers as well as by cognizant activities of national governments, Non-Governmental Organizations (NGOs), and the benefactors who view microfinance as a successful device for killing neediness. The incredible push behind this immense and expanding support for microfinance showed that national monetary and social effects are noteworthy and it should be analysed all the more intently. Self Help Group (SHG) provides microfinance services for people in rural regions so they can use the capital for small business, productive work and become financially stable and independent. In this article, we have described the impact of microfinance on poverty alleviation its impacts on people and society. Here we have explained, the main purpose of this article is to present Microfinance and how it can be useful for poor people and the reduction of unemployment.