Micro Finance Institutions(MFIs) are those crucial components of the Financial Markets that reach the poor of the last resort and help him/her alleviate from a De-financed state to a financially healthy state. In developing nations like India, MFIs are a boon. It is so because they help the credit mechanism reach the monetarily deprived section, especially in remote rural areas.
Government also keeps on bringing varied schemes to provide finance facility to the poor to help them unleash the potentiality of the rural markets. Now, if we look at the current MFI scenario of India, the outstanding loans amount to around 80million, some might have taken multi-loans, so the total beneficiaries' round about to 60million. Still, this is more than the 55million households in rural areas and more than a quarter of the 220million households in India. This shows how well these institutions can reach a given class of society.
Further, MFIs provide loans at about 30% interest, it may sound quite exorbitant but only till the point we come to know that moneylenders charge 50% interest rates along with harsh methods of receiving back the money, some even make the borrowers laborers till they pay off their debts! The most essential component of MFIs is that it embarks Women Empowerment in the culturally rigid RURAL SOCIETY where Male dominance and oppression is at peak. These MFIs provide loans ranging from Rs. 3000 to Rs. 15000 at 30% interest to a group of people, including women which help them to become self-dependant.
Women thus, can go further and initiate small scale economic set-ups to earn money. This has sigificantly reduced the male dominance in such areas. Bangladesh initiated this concept and today a large number of women have become self-reliant and the fertility rate has also come down there. The high rates are due to the fact that managing small-amounted loans is much more costlier than bigger, urban loans.
The Nationalized banks provide finance to MFIs which inturn provide it to the rural population. Some examples of MFIs are Arohan in Kolkatta, Sonata in Allahbad, etc. The centre needs to recognize the emergence of these institutions and provide greater support to them. Lets hope that Micro Finance firms grow further and emerge as change-makers in the large rural society of India.
Bhagirath Baria
- Bhagirath Baria
- The Author of this blog has keen interest in understanding Economics and its implications on the Individual and the Economy as a whole. Has been writing articles and analysis of issues that may skip general observation, but exert deep influence on people's lives and their decisions. Discussions and Debates related to conventional as well as non-conventional Economics is done here. The author of this blog doesn't classify himself to any particular School of thought in Economics. He is tilted toward Mainstream Economics, though has keen interest in a few Heterodox schools too. Wishing all the readers a truly enriching experience.
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Muhammad Yunus of Bangladesh is considered the father of micro finance. He received a noble peace prize in 2006.He has used various innovative ideas to uplift the poor. In 1 such scheme he lent loans of Rs50 each to beggars in order for them to buy sum sweets and edibles. The idea was that along with begging the beggers might also end up selling some of them . This scheme was a huge success and some beggars even ended begging and became small scale enterpreneurs. Empowering the poor indeed!. However the thing that amazes me the most is the low default rates of MFI's. At a time when the biggest banks in the world have collapsed because of loan defaults it is ironic that MFI's which lend to the poor and backward without any sort of collateral are growing rapidly.
ReplyDeleteIn India the credit for starting micro finance goes to Vijay Mahajan ,an alumnus of IIM A. he started his micro finance company named BASIX.