MICRO FINANCING

RELEVANCE AND CRITICS

Abstract
Microfinance was developed as an alternative to provide loans to poor people with the goal of
creating financial inclusion and equality ,and to help small-medium scale organizations to raise
money.

Sarthak Negi
Shagun Agarwal
MBA 2nd Semester
 Micro Financing
(Relevance and Critics)

1.Introduction

Microfinance is a kind of financial service ,including loans, savings and insurance

which is available to small scale entrepreneurs and small medium enterprise
business owners. Microfinance is defined as, financial services such as savings
accounts, insurance funds and credit provided to poor and low income clients so as
to help them increase their income, thereby improving their standard of living.
Microfinance is considered a tool for socio-economic development. Loans to poor
people by banks have many limitations including high operating costs. As a result,
microfinance was developed as an alternative to provide loans to poor people with
the goal of creating financial inclusion and equality.

In order to enjoy the benefit of microfinance, besides government agencies and

bank institutions, non-bank institutions also play and important role in providing
microfinance services.

2.Importance of Microfinance

Microfinance is important as a financial product which helps the micro-enterprise

in term of financing.

There are different types if services provided in microfinance program to help the
poor in their business.

• Financial service drives to socioeconomic development of poor and poverty

reduction.
• Loan service at reasonable interest: Let the poor people use it to generate
income through self-employment.

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 • Saving services: Enhance the capacity of the poor to face the uncertainty
problems, reduce the financial cost of lending and to keep sustainable fund
sources.
• Social mediation services: It helps the marginalized groups to increase their
self-reliability, making them more capable and preparing them to engage in
formal financial intermediation.

3.Let’s see work of Micro Financing NABARD (National Bank for agriculture and
rural development)

Objective of NABARD

The key objective of the Micro Credit Innovations Department has been to facilitate
sustained access to financial services for the unreached segments of the population
viz. the poor in rural hinterlands

Approaches of NABARD

• Promotion of Self Help Group – Bank Linkage Programme (SHG-BLP)

• Women Self Help Group scheme of GOI
• Promotion of Joint Liability Groups (JLGs) and their financing by banks
• Digitization of SHGs- EShakti

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4.Achievement

Over the period of 25 years, the SHG BLP programme has become a huge success
amongst all the stake holders. As on 31 March 2018, the total number of SHGs
saving linked with banks stood at 87.44 lakh and the total number of SHGs having
loans was 50.20 lakh with outstanding loan of R75598 crore. The success of SHGs
has attracted the attention of policy makers for attaining various objectives like
poverty alleviation, women empowerment, social upliftment, financial inclusion,
entrepreneurial development, etc.

Achievements of SHG-Bank Linkage Programme – 2017-18

Sr.
Particulars Achievements
No.
Financial
Physical
(Rs. in
(No. in lakh)
crore)
1 Total number of SHGS saving linked with banks 87.44 19592
(i) Out of total SHGs – exclusive Women SHGs 73.90 17498
(ii) Out of total SHGs – under NRLM/SGSY 41.84 10434
(iii) Out of total SHGs – under NULM/SJSRY 4.25 1351

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2 Total number of SHGs credit linked during 2016-17 22.61 47186
(i) Out of total SHGs – exclusive Women SHGs 20.75 44559
(ii) Out of total SHGs – under NRLM/SGSY 12.70 25055
(iii) Out of total SHGs – under NULM/SJSRY 1.06 2424
Total number of SHGs having loans outstanding as
3 50.20 75598
on 31 March 2017
(i) Out of total SHGs - exclusive Women SHGs 45.49 70402
(ii) Out of total SHGs - under NRLM/SGSY 27.93 38225
(iii) Out of total SHGs - under NULM/SJSRY 2.90 5351
4 Data on Joint Liability Groups
(i) Cumulative JLGs promoted as on 31 March 2017 34.73
Cumulative loan disbursed to JLGs as on 31 March
(ii) 40803.27
2017

Progress of last 3 years

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Loan disbursed in last 3 years

3.Critics

Most criticisms of microfinance have actually been criticisms of microcredit.

Criticism focuses on the impact on poverty, the level of interest rates, high profits.
Other criticism include the role of foreign donors and working conditions in
companies affiliated to microfinance institutions, particularly in Bangladesh.

Microfinance is a broad category of services, which includes microcredit.

Microcredit is only about provision of credit services to poor clients; only one of the
aspects of microfinance, and the two are often confused. Critics often point to
some of the ills of micro-credit that can create indebtedness. Due to diverse
contexts in which microfinance operates, and the broad range of microfinance
services, it is neither possible nor wise to have a generalized view of impacts
microfinance may create. Many studies have tried to assess its impacts. Proponents
often claim that microfinance lifts people out of poverty, but the evidence is mixed.
What it does do, however, is enhance financial inclusion.

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4.Conclusion

Microfinance aims to help the poor by providing them financial services in order to
expand their business, especially those small and medium enterprise (SME) in rural
areas.

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