Financial Inclusion through Microfinance Institutions in India

Concept of micro finance is emerged in need of meeting special goal to empower under-privileged class of society, women, and poor, downtrodden by natural reasons or men made; caste, creed, religion or otherwise. The idea of micro finance was developed as a survival strategy for the poor. Ela Bhatt in India and Professor Muhammad Yunus of Bangladesh are the pioneers in this field. The paper aims to study the concept of Microfinance and Microfinance institutions and its impact on financial inclusion with special focus on poverty alleviation and women empowerment in India. A MFI is an organization that acts as an interface between the formal credit delivery institutions and credit seekers, with an aim to assist for the socio economic development of poor and marginalized people. The paper discusses the types of MFI’s, its working and some of the leading MFI’s in India. To understand the current scenario we have discussed SWOT of MFI’s in India and analyzed growth of MFI’s based on Bharat Microfinance Report 2011. Inclusive financial system, one that allows broader access to financial services, can lead to faster and more equitable growth. Such a system allows poor households to save and manage their money securely, decreases their vulnerability to economic shocks and allows them to contribute more actively to their development. Microfinance is increasingly being considered as one of the most effective tools of reducing poverty. Microfinance has a significant role in bridging the gap between the formal financial institutions and the rural poor. Micro finance still plays a modest role in India. At the All India Level less than 5 per cent of poor rural households have access to micro finance (as compared to 65 per cent in Bangladesh) with significant variation exists across the states.

JEL classification: G21