Microfinance in India

What is microfinance?
Microfinance is a type of financial services for aspiring and needy entrepreneurs and small businesses
lacking access to banking and related services in their reach. The two main mechanisms for the delivery
of financial services to such clients are:
relationship-based banking for individual entrepreneurs and small businesses; and
group-based models, where several entrepreneurs or business owners come together to apply for loans
and other services as a group. For eg. SKS, Bandhan Finance.

Microfinance in India
Loans to poor people by banks have many limitations including lack of security and high operating costs.
As a result, microfinance was developed as an alternative to provide loans to poor people with the goal
of creating financial inclusion and equality.
Muhammad Yunus, a Nobel Prize winner, introduced the concept of Microfinance in Bangladesh in the
form of the "Grameen Bank". The National Bank for Agriculture and Rural Development (NABARD)
took this idea and started the concept of microfinance in India. Under this mechanism, there exists a link
between SHGs (Self-help groups), NGOs and banks.

What are the features which makes Microfinance in India so popular?

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Loan given without security

Loans to those people who live below the poverty line
Members of SHGs may benefit from micro finance
Maximum limit of loan under micro finance 25,000/Terms and conditions offered to poor people are decided by NGOs
Microfinance is different from Microcredit- under the later, small loans are given to the
borrower but under microfinance alongside many other financial services including savings
accounts and insurance. Therefore microfinance has a wider concept than microcredit.

The four most important Micro Finance Types prevalent in India are:
1. TYPE I - individuals or group borrowers are financed directly by banks without the intervention
of any Non-Government Organisation (NGO).
2. TYPE II - borrowers are financed directly with the facilitation extended by formal or informal
agencies like Government, Commercial Banks and Micro-Finance Institutions (MFIs) like NGOs,
Non-Bank Financial Intermediaries and Co-operative Societies.
3. TYPE III - financing takes place through NGOs and MFIs as facilitators and financing agencies;
4. TYPE IV - is the Grameen Bank Model, similar to the model followed in Bangladesh.

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In India, TYPE II of MF constitutes three-fourths of total micro-financing where activity/joint

liability/Self-Help Groups are formed and nurtured by facilitating agencies and are linked directly with
banks for the purpose of receiving credit.

According to analysis by CRISIL, Indias top 25 Microfinancial Institutes in 2014 are:

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Annapurna Microfinance Pvt Ltd

Arohan Financial Services Pvt Ltd
Asirvad Microfinance Pvt Ltd
Bandhan Financial Services Pvt Ltd
BSS Microfinance Pvt Ltd
Cashpor Micro Credit
Disha Microfin Pvt Ltd
Equitas Microfinance Pvt Ltd
ESAF Microfinance and Investments Pvt Ltd
Fusion Microfinance Pvt Ltd
Grama Vidiyal Micro Finance Ltd
Grameen Financial Services Pvt Ltd
Janalakshmi Financial Services Pvt Ltd
Madura Micro Finance Ltd
RGVN (North East) Microfinance Limited
Satin Creditcare Network Ltd
Shree Kshetra Dharmasthala Rural Development Project
SKS Microfinance Ltd
S.M.I.L.E Microfinance Ltd
Sonata Finance Pvt Ltd
Suryoday Micro Finance Pvt Ltd
SV Creditline Pvt Ltd
Swadhaar FinServe Pvt Ltd
Ujjivan Financial Services Pvt Ltd
Utkarsh Micro Finance Pvt Ltd

This is very important for all the banking, insurance examinations & interviews as Microfinance is a
major part of financial inclusion both nationally and globally.
Source of the materials: Finance Ministry, RBI.
Share it, read it, tell us what more do you want at admin@exampundit.in

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