What Is Microfinance?

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Chapter 1: INTRODUCTION & RESEARCH DESIGN

Microfinance refers to a variety of financial services that target clients such as particularly women and low-income groups. Since the clients of microfinance institutions (MFIs) have lower incomes and often have limited access to financial services microfinance products that are for smaller monetary amounts than traditional financial services. These financial services include loans, insurance, savings, and remittances. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services. Microloans are given for different purposes and most frequently for microenterprise development. Some studies indicate that microfinance …show more content…

The diversity of products and services offered reflects the fact that the financial needs of enterprises, households, and individuals can change outstandingly over time and most especially for those who live in poverty. This is due to varied needs and because of the industry’s focus on the poor microfinance institutions often use non-traditional methodologies such as group lending or other forms of collateral not employed by the formal financial sector. Microfinance is a general term to describe financial services to those who do not have access to typical banking services or to low-income individuals. Microfinance is the supply of loans, savings, and other basic financial services to the low income group. As these financial services involve small amounts of money - small loans, small savings, etc. - the term "microfinance" helps to differentiate these services from those which formal banks provide. Microfinance India is a national platform that strengthens the microfinance sector through intellectual debate, high …show more content…

Nobel Laureate Muhammad Yunus is given the credit for laying the foundation of the modern MFIs with establishment of Grameen Bank, Bangladesh in 1976. Microfinance Institutions (MFIs) in India exist as NGOs (registered as societies or trusts), Section 25 of companies and Non-Banking Financial Companies (NBFCs). Today it has evolved into a vibrant industry exhibiting a variety of business models. Banks have also leveraged the Self-Help Group (SHGs) channel to provide direct credit to group borrowers. Commercial Banks, Regional Rural Banks (RRBs), cooperative societies and other large lenders have played an important role in providing refinance facility to MFIs. Microfinance has occupied center stage as a promising conduit for extending financial services to unbanked sections of population. The microfinance sector is having a healthy growth rate and there have been a number of concerns related to the sector, like grey areas in low financial literacy, regulation, transparent pricing, etc. In addition to these concerns there are a few emerging concerns like insufficient funds, cluster formation, multiple lending and over-indebtedness which are arising because of the increasing competition among the MFIs. There has been a spate of actions taken to strengthen the regulation of MF sector including, enactment of microfinance regulation bill by the Government of Andhra Pradesh, implementation of sector-specific

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