Microfinance: Empowering the poor

Microfinance is a new financial innovation with a focus on reaching the economically weaker
sections of the society.

Financial assistance for ‘inclusive growth’ has become the prime target of microfinance.
Formation of Self Help Groups (SHG) to take up a small business, trade or a service activity at
country side with bank financial assistance is expected to empower the certain categories of
sections of the society hither to left out from the process of economic development. Off late, the
success of microfinance experiment has become synonymous to women empowerment in most
st ates in our country. Pondicherry University is shortly organizing a mega knowledge sharing
event on issues relating to ‘Microfinance’ by inviting experts from different parts of the country
and from the world for sharing experiences across the globe.

What is Microfinance?

Microfinance today stands for financial assistance to the poor not only at reasonable rates of
interest but also at sustainable quantum. Microfinance lending includes bank assistance to
broader range of services, i.e. credit facility, insurance coverage, marketing of products,
government subsidy, etc. Financial institutions address the poor and very poor categories of
population who lack access to formal financial assistance to take up a small business venture.
Microfinance interventions are well recognized world over as an effective tool for poverty
alleviation and improving the socio-economic conditions of the weaker sections of the society.
Microfinance experiments in India largely focused on twin objectives of reducing the poverty and
empowering the women in our society. An SHG bank linkage program initiated by NABARD,
government of India has been effective in all States with different names. The SHG concept
facilitated the poorer sections of population especially the women to form s groups and identify
a viable business/trading avocation and undertake with institutional support.

SHG: A Tool for Women Empowerment

Empowerment is a process of socio-economic change by which individuals or groups gain

economic power and ability to organize their livelihood. It involves increased well being, access
to resources, increased participation in decision making and control over the use of resources.
In other words, empowerment is a process, which challenges the traditional power equations
and access to economic resources. The Micro credit facilitates the poor women to organize as
groups and rotate funds among the members and build economic capacities. Deepening and
widening of institutional credit among the poor was achieved to a greater extent through the
microfinance channels. Loans from money lenders and informal sources at very high interest
rates were significantly declined due to substantial financial interventions. Microfinance is not
always for economic activities of the SHG members but also for essential family needs.
Consumption loans as well as financial assistance for economic activities facilitated the social
empowerment of SHG members. A gradual change in the values and attitudes of the member of
SHG not only resulted in socio-economic empowerment ,creates a new social order.

Integrated Institutional Efforts

Different institutions play a mega role in the microfinance space in our country. Major
institutions include Banks both public, private sector banks, NBFCs, special MFIs and insurance
companies, agriculture and dairy co-operatives, corporate organizations such as fertilizer
companies, handloom houses and even the post offer specialized lender institutions.
Microfinance institutions provide both loans and capacity building support to SHGs. Of late, the
microfinance movement has emerged as an industry embracing thousands of NGOs/MFIs,
Community-based self-help groups and their federations, co-operatives in their varied forms,
Credit Unions, public and private sector banks. During the last decade this sector has witnessed
the sharp growth with emergence of a number of microfinance institutions (MFIs) in providing
financial and a non-financial support.
NABARD: Bank Linkage

The financial inclusion has become the priority in Indian financial circle especially after Reserve
Bank of India announced a series of measures in its credit policy 2006-07 to include many of
the hither to excluded groups particularly self-help groups through micro credit delivery in the
banking net. The concept of financial inclusion refers to extension of banking services at an
affordable cost to vast sections of disadvantaged and low income groups especially to the self-
help groups through micro lending. The banking industry has shown tremendous growth in
volume and complexity during last decade in microfinance space. NABARD has emerged as an
Apex refinancing agency for engaging in financial viability, profitability and competitiveness of
MFIs. Its efforts to include vast packets of needy microeconomic entities has shown a
tremendous result.

Adieu to Rural Indebtedness

What is needed is a new empowerment vision for microfinance which places emphasis on micro
and macro strategies to attain sustainability for the program. A financial service provider of
different type is expected to address on time honored social structure, debt bondage, role of
family indebtedness and address on comprehensive solutions. The question for any program is
how to ensure that the services are delivered in utmost cost efficient and sustainable way for
benefits to flow to the needy.

Any strategy for increasing the access to a financial service warrants a vibrant support system.
Towards the end a two track approach to create an inclusive banking, viz (i) creation and
promotion of small banks with strong linkages with large entities to facilitate retailing of
financial products to small clients, (ii) active exploring of channels by which non traditional
entities with extensive low cost networks like post offices etc. A new look at the work of rural
women, scaling innovations, linking them with the knowledge economy and focusing on equity,
microfinance may likely to create social capital by promoting horizontal and vertical networks
within a community, established by newer norms and social trust.