Indian since independence has been attempting through various plans and programmes to develop an equitable society in which everybody will at least be able to meet the basic requirement of life.
The various antipoverty programmes launched for the purpose of providing support to the poor people to cross above the poverty line in the past found did not achieve desired results due to various reasons. But, one of the important reasons identified for which poor people could not rise above the poverty line in the past found did not achieve desired results due to various reasons. But, one of the important reasons identified for which poor people could not rise above the poverty line was the lack or low access to credit from the formal financial institutions. To make formal financial institutions more responsive to the needs of the poor, the government had initiated concerned effort during 1960-1990 through various measures like nationalization of private commercial banks, expansion of rural branch networks, extension of subsidized credit, establishment of Regional Rural Banks (RRBs) and the establishment of apex institutions such as the National Bank of Agriculture and Rural Development (NABARD) and the Small scale Industries Development Board of India (SIDBI) to increase the rural outreach and credit volume in priority sector.
By the early 1990s, these measures showed results in terms of impressive rural outreach and credit volumes. however, it was also found that the institutional structure was neither profitable nor suitable to the needs of low income population segments. There was emergence of many civil society initiatives such as the SEWA Bank and the Women’s Welfare Forum (WWF) extending credit to women workers in the unorganized economy on certain common principles such as the reliance on peer pressure as opposed to physical collateral, self-sustainability, and self-help. It was during that period that the “microfinance,” as it is understood today, first emerged on the Indian development scene by the effort of NABARD initiated Self Help group (SHG) – Bank Linkage program, which links informal women’s groups to formal banks. This concept held great appeal for non-government organizations (NGOs) working with the poor, non-government organizations (NGOs) working with the poor, promoting many of them to collaborate with NABARD in the program. This period also witnessed the entry of another set of stakeholders known as Microfinance Institutions (MFIs), largely of non-profit origins, with existing development programs. Financial intermediation emerged as the new development mantra for engaging with the poor. They were supported in this effort by apex institutions such as SIDBI, Rashtriya Mahila Kosh (RMK) and Friends of Women’s World Banking (FWWB) through extension of on-lending funds. Though initially aided by international donors and soft loans, many of the NGO-MFIs went on to acess commercial loan funds from domestic banks and achived extensive client outreach. In 2000, the third phase in the development of Indian microfinance began, marked by further changes in policies, operating formats, and stakeholder orientations in the financial services space.
In the current decade, India witnessed a surge in its economic growth, a result of the reforms initiated in the early 1990s. Amidst the general economic euphoria, a growing emphasis emerged on “inclusive growth” and financial inclusion.” Microfinance and rural markets are seen as key drivers to meet this objective and informal actors including NGO-MFIs and SHGs have gained greater legitimacy. This period lso saw many NGO-MFIs transform into regulated legal formats such as Non-Banking Finance Companies (NBFCs). Commercial banks such as ICICI Bank adopted innovative ways of partnering with NGO-MFIs and other rural organizations to extend their reach into rural markets. MFIs have emerged as strategic partners to individuals and entities interested in reaching out to India’s low income client segments. Consumer finance, primarily driven by auto finance, housing finance, and consumer durable finance, emerged as high growth area within the financial system with many players competing for market share. Now there is increased recognition of MFIs’ contribution in credit delivery to poor people in rural areas although their area of operation is not exclusively confined to rural area.
What is Microfinance?
The Reserve Bank of India )RBI) defines microfinance as “the provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve their living standards.” Such clients have been largely excluded from the credit extended by commercial banks. Traditionally, microfinance clients were self-employed micro-entrepreneurs for whom credit served the purpose of consumption smoothening, investment in productive assets, or working capital for income-generating activities.
Microfinance is a very young and growing sector in the financial market. In contrast to the formal financial sector, it provides small financial services (Rs. 1000-50,000) to assist the poor both financially and socially. Microfinance aims to target the rural and urban poor who own micro-enterprises that work in agriculture, dairy, poultry, grocery, tailoring, broom making, and pottery, among others. Microfinance practitioners, as a whole, aim to target almost 500 million people. There are various organizations involved in microfinance like BABARD, SIDBI, SBI Associates, Oriental Bank of Commerce, some private banks and funds. besides there are a new generation of microfinance practitioners and various social development agencies have adopted microfinance as an effective tool to fight poverty and empower women. They are largely known as Micro Finance Institutions (MFIs). the involvement of various public, private and other NGOs shows the value and scope of growth in this sector.
The potentiality of Indian Microfinance sector is very huge. On a conservative estimate, 10 crore households need micro-credit and other financial services which are not available to them at an affordable cost. In the last tow decades, the MFIs have grown phenomenally but they could reach hardly around 10 percent of the potential clients. There is enough scope for this sector in India to grow horizontally and vertically. The sector needs personnel from various educational and experience backgrounds to serve in the organization at various level.
Graduates in any discipline having experience of social economic and cultural conditions of the locality are preferred by MFIs to serve as local coordinator / local organizer/ community organizer / group promoter / field officer at the operational level. The graduates beginning their career with MFI as filed level-officer increase their future employment potential. The entry level pay various from Rs. 5,000/- to Rs. 10,000/- per month along with other incentives. The Commerce graduate or post graduate may opt for credit officer/ accountant post in MFI.
The graduates of rural development and rural management institutes are in highly preferred for various positions in MFIs. Even retired / VRS professionals having experience of working in banks, government sects may seek reemployment in MFIs. The candidates having experience of working in good Indian MFIs are in high demand for international microfinance post in various developing counties and international organizations with high salary package.
Dr. B.C. Das