“Microfinance” is often defined as financial services for poor and low
-income clients. Inpractice, the term is often used more narrowly to refer to loans and other services from providers
that identify themselves as “microfinance institutions” (MFIs). The
se institutions commonly tendto use new methods developed over the last 30 years to deliver very small loans to unsalariedborrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of readyaccess to future loans if present loans are repaid fully and promptly.In the development paradigm, micro-finance has evolved as a need-based policy and programmeto cater to the so far neglected target groups (women, poor, rural, deprived, etc.). Its evolution isbased on the concern of all developing countries for empowerment of the poor and thealleviation of poverty. Micro-finance programmes have, in the recent past, become one of themore promising ways to use scarce development funds to achieve the objectives of povertyalleviation. The basic idea of micro-finance is simple: if poor people are provided access tofinancial services, including credit, they may very well be able to start or expand a micro-enterprise that will allow them to break out of poverty.For development practitioners, the success of micro-finance programmes is encouraging. Toooften in the past, costly large-scale development initiatives have failed to achieve any sustainablebenefits, especially after funds have dried up. Thus, micro-finance has become one of the mosteffective interventions for economic empowerment of the poor.
GENESIS OF MICROFINANCE
The first major demonstration of this kind of lending came from Bangladesh, a country whichwas virtually synonymous with poverty. During 1976, Muhammed Yunus, then a professor of economics at Chittagong University, began an experiment aimed at helping impoverishedvillagers. Defying the usual rules, he lent them unsecured money to start small enterprises,such as rice processing, rickshaw-driving and weaving. Instead of collateral, the borrowers wereto form small groups( called Self Help Group) and agree to a fact of mutual liability, in