Microfinance means providing financial assistance to poorest of the poor to alleviate poverty. It seems to be the effective tool to poverty alleviation with its social objectives. The moral edge, of the industry in providing loans to the poorest is rapidly eroded. There is need for an effective model which carries the social objectives of microfinance with justified profit motive of both lender and borrower.
This paper is an attempt to understand the key features of microfinance model prevailing in India and developing an overview of major challenges and issues associated with the microfinance model. The purpose of the study is to develop a conceptual promising microfinance model (Interest Free Microfinance Model) to address the challenges of the existing models.
The study is descriptive in nature and based on secondary data, collected through the existing literature and annual reports of financial institutions and government agencies engaged in microfinance. The statistical analysis has been conducted to draw meaningful conclusions and suggestion.