Importance Of Microcredit

A majority of the Indian population lacks opportunities such as financial resources and thereby the ability to get jobs. They are stuck in an endless cycle which provides them with no opportunities to lift themselves out of poverty. Microcredit has been seen as a lifeline and as an opportunity by governments in developing countries, international funding organizations and donor agencies, in order to help the poor attain money since the 1950’s. It was in the 1950s and1960s, for the first time Indian Government started giving out loans to families in rural areas those who worked in the agricultural sector as well as city-dwelling families who were working in the unskilled sector to promote economic growth throughout India. Households in the agricultural sector were divided into three different groups according to the type of work done by them. The ones doing similar work were put in the same group and the loan amount they would get depended on the type of work they did.

The first group was that of the small and medium agricultural farmers. It also comprised of the artisans and people who rear poultry and other landless livestock. The second group was that of the micro-enterprise workers. They were either the agricultural or the poultry/dairy farmers who used to sell their crops and produce. The non-farm sector workers who worked in repair shops, wooden furniture making shops and other microenterprises were also included in this group. The third group was that of small agricultural, poultry, dairy-based enterprises; and non-farming individuals. The groups usually employed 6-10 workers, working in an enterprise. By 1969, Prime Minister Indira Gandhi started nationalizing the commercial banks. The nationalization of commercial bank...

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...lmost none of the poorest households had any sort of insurance cover.

Since the poor people do not have steady jobs, their incomes are irregular and unpredictable, and banks have no collateral against which the loans can be given out; thus the banks do not want poor clients from both rural and urban areas. Furthermore, the “geographical distance, the widespread illiteracy, and the diverse backgrounds of borrowers” (in this case the rural poor) and the frequency of high cost transactions make it difficult and non-desirable for the banks to give out the loans to rural poor communities. Banks also believe in the fact that the government’s rules and regulations make it difficult to distribute loans to the poor. India’s rural poor have their own financial needs that are influenced by their location, living situation, and their availability to resources and opportunities.