Role of Microfinance in Financial Inclusion in India

Role of Microfinance in Financial Inclusion in India

Madhuri Malhotra (Loyola Institute of Business Administration, India)
DOI: 10.4018/978-1-5225-5213-0.ch018

Abstract

The purpose of this chapter is to critically evaluate the status of microfinance in India, the types, characteristics, and modes of operation of MFIs. It also highlights the main differences between commercial baking and microfinance institutions and examines the extent to which banks fulfill financial requirements and of whom? This chapter presents a linkage among microfinance institutions, financial inclusion, and economic development on a country. The study reveals that MFIs contribute in the upliftment of the society leading to economic benefit to the country as a whole. It makes the reader realize the importance of microfinance in the economic development of a country which cannot be realized just by uplifting the structured and most sophisticated banking sector. Handholding of the poor and rural population is required in order to accelerate the process of financial inclusion and thereby reaching the goal of economic development.
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Microfinance Institutions In India

Microfinance concept started with the idea of providing financial services to the poor who are otherwise considered un-bankable or credit-unworthy. Modern microfinance concept revolves around the activities of the Grameen Bank which were pioneered by Nobel Laureate Dr. Mohammad Yunus. The initial success of Grameen Bank in alleviating poverty brought this concept into the global limelight and has led to micro-finance being populated as a panacea for poverty and under-development across the world. The basic principle of microfinance is that a group of individuals is more bankable than a single individual. Micro financing loans are small loans granted to the basic sectors, on the basis of the borrower’s cash flow and other loans granted to the poor and low-income households for their microenterprises and small businesses to enable them to raise their income levels and improve their living standards. The main aspect of micro credit is that the loan is given without the requirement of any collateral security and the lender has nothing to fall back on, other than the intangible assurance of the borrowing group.

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