STATUS, BENEFITS, CHALLENGES AND SOLUTIONS OF MICROFINANCE –A STUDY

MICRO FINANCE

Micro Finance is defined as ‘provision of credit and other financial services and products of very small amounts to the poor in rural, semi urban or urban areas, for enabling them to raise their income levels and improve living standards‘. It is an economic tool designed to promote financial inclusion which enables the poor and low-income households to come out of poverty. This empowerment takes various forms, from fostering entrepreneurship and livelihood generation to promoting women’s economic autonomy and enabling access to critical services like education and healthcare. Moreover, microfinance often operates through community-based models like Self-Help Groups (SHGs), fostering social cohesion and community development. As a result, microfinance acts as a catalyst for financial inclusion, poverty alleviation, gender equality, and overall local economic growth, driving sustainable development in diverse contexts worldwide. Micro credit: Micro credit is the extension of very small loans to borrowers who typically lack collateral, steady employment or income stream and verifiable credit history. It is designed to support small-scale entrepreneurship, alleviate poverty, empower women and uplift the poor social class by extension. Microcredit is delivered through a variety of institutional channels including Scheduled Commercial Banks (through Business Correspondents), Regional Rural Banks (RRBs), Cooperative Banks, Non-Banking Financial Companies (NBFCs) and Microfinance Institutions (MFIs). Government Programmes: (a) SHG-Bank Linkage Programme (SHG-BLP): This channel was initiated by NABARD in 1992. This model incentivizes women to unite together to form a group of 10-15 members. Women belonging to financial backward classes contribute by giving their individual savings to the group at regular intervals. Loans are provided to the members of the group by their contributions.

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