Now in India themajority of publics lives in rural areas and rest on agriculture-connectedactivities. However, a rare people own the most of the land and majority of thepoor have no land in their ownership. Since independence various measures takenby the government have upgraded the condition to some level. But there is alittle scope to improve the welfare of the poor based on land-based activities.In this situation credit plays a vital role for the disadvantaged.
Keeping thisin mind various credit linked poverty alleviation programmes have been taken upfrom time to time such as Integrated Rural Development Programme. For the purpose of economicempowerment of the weaker sections commercial banks were nationalized in 1969. Thereforeland development banks and cooperative banks were recognised across thecountry. To addition credit provision in the rural areas, Regional Rural Bankswere established in 1975. They have played a significant role in the executionof credit-linked scheme like Integrated Rural Development Programme. Thissubsidy-linked programme unsuccessful to accomplish its objective due to wrongidentification of receivers, leakages, misuse of subsidies and low recoveries.
Despite the infrastructure, hugepoverty-linked alleviation programmes and statutory obligations, 64.5 per centof the poor were still borrowing from informal sector (2011). There are anumber of restrictions of the formal sector in providing credit to thepoor-cumbersome procedure; insistence on collateral/guarantee, mobilization ofpromoter’s contribution, etc. the concept of micro finance was announced forovercoming the prevalent restriction and providing adequate credit to the poor.It mobilizes saving and supplements it with loan from the financialinstitutions.1 Microfinanceis an option to resolve this problem of poor people. Microfinance is theprovision of a wide range of financial services for example deposits, loans, paymentservices, money transfers, and insurance to poor and low-income households and,their micro enterprises. Microfinance is an approach that has been confirmed toempower people everywhere in the world to pull themselves out of poverty.
1. Dr.R.Rajkumar & Dr.Sita Ram Singh(2010), “Micro Credit and Economic Development”, Regal Publication pp.3-4Relying on their traditional skills and entrepreneurialnatures, recipients of small loans, other financial services, and support fromlocal organizations called microfinance institutions (MFIs) to start,establish, sustain, or enlarge very small, self-supporting businesses. A key tomicrofinance is the recycling of loan rupees. As each loan is repaid usuallywithin six months to a year the money is recycled as another loan, thusmultiplying the value of each rupee in defeating global poverty, and changinglives and communities.
2 1.2. DEFINITIONOF MICROFINANCE:- Internationalperception: Microfinance being referred to as small scalefinancial services provided to people, who work in agriculture and alliedsectors; who operate small and micro-enterprises, who provide services, whowork for wages and commission and other individuals and groups at the locallevel of developing countries both under rural and urban areas (Robinson1996).
Microfinance can be interpreted in a broader context to contain bothmicrocredit and micro-savings, even though microcredit and microfinance havecome to be used interchangeably. By implication, the amounts of credit andsavings are small. (Kaladhar 1997).3″Microfinance canbe defined as any activity that includes the provision of financial servicessuch as credit, savings, and insurance to low income individuals which falljust above the nationally defined poverty line, and poor individuals which fallbelow that poverty line, with the goal of creating social value”. The creationof social value includes poverty alleviation and the broader impact ofimproving livelihood opportunities through the provision of capital for microenterprise, and insurance and savings for risk mitigation and consumptionsmoothing.
A huge variety of playersprovide microfinance in India, using a range of microfinance distribution systems.Since the founding of the Grameen Bank in Bangladesh, various actors have endeavouredto provide access to financial services to the poor in creative ways. Governmentshave conducted domestic programs; NGOs have undertaken the activity of raisingdonor funds for on-lending, and some banks have partnered with publicorganizations or 2. http://shodhganga.inflibnet.
ac.in/bitstream/10603/7288/9/10_chapter%201.pdf3. Kishanjit Basu and Krishan jindal,”Microfinance Emerging Challenges”, Tata McGraw-Hill Publishing CompanyLimited, New Delhi. ISBN 0-07-463539-5, Page no-279.Made small inroads themselves in providingsuch services. This has resulted in a relatively broad definition ofmicrofinance as any activity that targets poor and low-income individuals forthe facility of financial services.
The range of activities started inmicrofinance includes group leading, individual leading, the provision ofsavings and insurance, capacity building, and agricultural business developmentservices. Whatever the form of activity however, the main goal that combinesall actors in the provision of microfinance is the creation of social value.Microfinance is therefore defined as much by form as by committed of the lenderor financial service provider.4 Micro finance canbe well-defined as provision of saving credit and other financial services andproducts of very small accounts to the poor (like small and marginal farmers,landless agricultural workers, seasonal workers and the self-employed in theinformal sector including village artisans, hawker and vendor, fisherman, pettyshop owners, etc.) in rural, semi urban or urban areas for enabling them torise their income levels and improve living standards.
“Small scalefinancial services for both credits and deposits that are provided to peoplewho farm or fish or herd; operate small or micro enterprise where goods areproduced, recycled, renovated or traded; deliver services: work for incomes andcommissions; gain income from renting out small amounts of lands, vehicles,draft animals or equipment and tools; and to other individuals and local groupsin emerging countries in both rural and urban areas”. – MargueriteS. Robinson”Micro finance is aproviding of saving, credit and other financial services and products of verysmall quantities to the poor in rural, semi-urban areas for facilitating thepoor to increase their income levels and living standards”. -The NABARD Task Force (1999)It is important to understand the genesis of microfinance as it differs from ‘Contemporary financial services’ or ‘commercialfinance’. Firstly micro finance is not driven by sustainability, however, itmay not be mistaken that micro finance programme cannot become sustainable.4.
G. Rama Krishna (2010), “Microfinance inIndia: A tool for Women Empowerment”, Manglam Publications-Delhi-110053, FirstEdition, page no-171-172. The premise that dominates microfinance programme is that of providing ‘equitable means and opportunities’ topoor to take stock of their lives (NIRD, 2005). Micro finance can help poor peoplerealize their potential by raising their income, increase assets, reducingvulnerability, socially empower its participants (mostly women) and contributeto broader social and economic development. It also allows poor to improvetheir access to education, health services, better nutrition and so on.5″Microfinancegenerally refers to a broad set of financial services tailored to fit the needsof poor individuals”.
6″MicroFinance is defined as provision of thrift, credit and other financial servicesand products of very small amount to the poor in rural, semi-urban and urbanareas for enabling them to raise their income levels and improve livingstandard”Microfinance programmes can help poor household smooth consumption during an adverseshock. Access to credit may help them to avoid distress sales of assets andreplace productive assets destroyed in natural disasters. They can also providecapital to create or expand micro enterprises. Thus MF helps households todiversity their sources of income shocks. The evaluation of MF has taken placedue to concern of developing countries for empowerment of the poor and thealleviation of poverty. It has evolved as a need based policy and programme tocater to the so for neglected target group i.
e. women, poor, rural, deprived,etc. in recent years, MF has become one of the most important intervention foreconomic empowerment of the poor.7″Microfinance means the wide range of financial services such as loans,insurance, savings etc. delivered to the people of low-income groups”.Microfinance plays a innovative role in any country’s economy. It helps thepoor people to fulfil their basic necessities and protection them from anyrisks.85.
Dr.R.Rajkumar & Dr.Sita Ram Singh(2010), “Micro Credit and Economic Development”, Regal Publication, NewDelhi-110027, page no-97-98.6.
R.Rajkumar & Dr.Sita Ram Singh(2010), “Micro Credit and Economic Development”, Regal Publication, NewDelhi-110027, page no-229-230.8.
http://keydifferences.com/difference-between-microcredit-and-microfinance.html1.3. DEFINITION OF MICROCREDIT:- Microcredit hasbeen defined by the Micro-credit Summit held in 1997 as “programmes thatprovide credit for self-employment and other financial and business services(including savings and technical assistance) to very poor persons”.9 Micro creditprogrammes extend small loans to poor people for self-employment projects thatgenerate income allowing them to care for themselves and their families.
Inmost cases, micro credit programmes offer a combination of services andresources to their clients in addition to credit for self-employment. Theseoften include savings facilities, training, networking and peer support. The scope of micro credit is tooffer small size loans to poor people to start self-employment projects ofincome generating activities and allowing them to take care of themselves andtheir families. In most cases it offers a combination of services and resourcesto their clients in addition to credit for self-employment. It includes initialsavings, training, networking and other allied support. It provide loans forshort term period. In Bangladesh micro credit is extensively used for reaching thepoor.
It is proved to be a powerful weapon to fight against poverty. During theseventies many initiatives were taken in developed countries in Asia, Africa,and Latin America to expand and popularize the concept of micro-credit. Self-HelpGroups (SHGS) and Revolving Savings and Credit Associations (ROSCAS) are theoutcomes of such effort (Joshi, S.C., 2002). The Grameen Bank set upestablished by Prof.
Mohd. Yunus of Bangladesh is the pioneer of this popularmodel. Here the poor women by getting a loan could able to fight againstpoverty and achieve economic freedom (Meenakshi, B.
S., 2007). Microcredit is the extension of verysmall loans (microloans) to the unemployed, to poor entrepreneurs and to othersliving in poverty who are not considered bankable. These individuals lackcollateral, stable employment and a supportable credit history and then cannotmeet even the most minimal qualifications to gain access to traditional credit.Microcredit is a part of microfinance, which is the provision of financialservices to the very poor; separately from loans, it includes savings,microfinance and other financial inventions.9.
KishanjitBasu and Krishan jindal, “Microfinance Emerging Challenges”, Tata McGraw-HillPublishing Company Limited, New Delhi.ISBN 0-07-463539-5, Page no-279. Microcredit is a financialinnovation which originated in developing countries where fairy it hassuccessfully enabled extremely impoverished people to engage in self-employmentprojects that allow them to generate an income and, in various cases, begin tobuild wealth and exit poverty. Due to the success of microcredit, many in the outdatedbanking industry have created to realize that these microcredit borrowersshould more appropriately be considered as pre-bankable; hence, microcredit isincreasingly gaining credibility in the typical finance industry and manytraditional large finance organizations are expecting microcredit projects as asource of upcoming growth. Although almost everybody in larger development organizationsdiscounted the probability of success of microcredit when it was begun in itsmodern incarnation as pilot projects with ACCION and Muhammad Yunus in themid-1970s, the United Nations declared 2005 the international year ofmicrocredit.10 10. Dr.R.
Rajkumar& Dr.Sita Ram Singh (2010), “Micro Credit and Economic Development”, RegalPublication, New Delhi-110027, page no-30, 127, 193, 194.