Micro Finance Schemes in India

Microfinance schemes in India came into existence in the 1980s to help solve poverty and for empowering women. The term ‘microfinance’ means the management of small amounts of money. It is a scheme in which various financial assistance schemes such as loans, insurance, credit, money transfers and access to savings accounts are provided to low-income earners to improve their standard of living. The microfinance scheme provides finance to farmers through NABARD and the department of Micro Credit Innovations. It is given to those small business owners and entrepreneurs who are either unemployed or getting minimum wages as salaries. The term “microfinance companies” are used for those institutions which engage in this network of microcredit. 

History of Microfinance

Microfinance or MFIs in India started in the 1970s. The very first initiative to introduce microfinance was the “Self Employed Women’s Association” or SEWA Bank in Gujarat, in 1974. It provided financial assistance in rural areas to an individual who desired to grow their business. The poverty eradication mission in Kerala, Kudumbashree, was a successful initiative. Neighbourhood Groups (NHGs), led by female community organisation workers, grapple with issues such as health, agriculture and nutrition. Microfinance should aim at the promotion of socio-economic development, empower women and support the increment in household income.

Kinds of Microfinance

Microfinance includes the following types of products:

·  Microloans- It is an important type of loan given to borrowers without any collateral. Collateral is a type of security pledged with the bank when it gives loans but in this, the borrower is not restricted to pledging something. It is a sustainable process and offers better overall repayment of a loan. Thus, it encourages the probability of future investments. It protects people from a stressful life.

·  Micro savings- In this type of account, borrowers are allowed to handle their savings account with no minimum balance in it. The significance of micro-savings is that as people are not bound to have a certain amount of money in their accounts, people with low income and small businessmen can operate their accounts. It helps to develop a habit of saving and instils financial discipline among people.

·  Microinsurance- It is a kind of coverage provided to microloans borrowers. The significance of microinsurance is that it is a tool which protects people from any kind of accident which may happen in future. All types of risks faced by low-income earners globally are covered in it. 

Benefits of Microfinance in India

Microfinance schemes in India play a vital role in the economy and the overall development of the country. The basic objective of microfinance is to develop the standard of living of the financially weaker sections of society. It assists needy and poor people to generate income and do some business which in turn increases employment opportunities in the country. They offer small loans without any collateral security and easily give credit. Providing access to small entrepreneurs with capital is the most important function of microfinance in India. The quality of education provided in society is likely improved through the benefits gained by families from microloans. It assists in removing poverty by providing funds to existing businesses and loans to new businesses and by helping them to invest wisely. Microfinance schemes provide finance to farmers through various kinds of agricultural loans. Interest rates are lower in most cases than what a normal bank charges.

Examples of Microfinance schemes

It helps low-income earners to invest for needs in future and improves their capacity to earn. The success of microfinance in India is due to dedicated and well-trained staff members operating a clear, simple and transparent system which encourages poor people to start a business of their own and creates jobs in the country. Some of the microfinance services are:

·   Individual business loans assist small entrepreneurs to expand their businesses by providing loans in a more flexible and larger size.

·   Microfinance scheme provides finance to the farmers through agricultural loans to purchase fertilisers, seeds, and other equipment when they need the money and can repay the amount in the harvest.

·   Group loans are provided when members take guarantees for each other; it targets low-income earners.

·   Energy loans provide members with the opportunity to purchase products or clean electricity systems. Avoiding the usage of charcoal and kerosene improves health and ensures safety in their homes.

Conclusion 

Microfinance schemes are a financial tool which grant loans and other financial services to people who are in need and do not have access to any banking facilities. It is considered a vital part of the financial ecosystem of our country and helps in eliminating poverty from society. The value of the loans, usually below ₹1 lakh, are considered microloans. It targets those individuals or groups who get minimum wages or are unemployed to help them start their businesses. It improves the standard of living and promotes the social as well as economic development of poor people. Microfinance schemes in India experienced tremendous growth in the last decade.