Microfinance in India

 

Context

The Microfinance Industry Network (MFIN) recently held its third edition of "Micro Matters: Macro View – India Microfinance Review FY 2022-23" in Mumbai.

Key findings of the report

1. The microfinance sector has expanded to 87 lakh new women clients, reaching approximately 6 crore low-income women with outstanding credit of over 3 lakh crores across 729 districts.
2. MFIs followed by banks are the largest provider of micro-credit amongst other regulated entities.
3. MFIs' gross Non-Performing Assets (NPA) decreased from approximately 5.6% in FY22 to 2.7% in FY23.

About Microfinance in India

1. Status: A National Council of Applied Economic Research (NCAER) study indicates that microfinance contributes to approximately 130 lakh jobs and 2% of the Gross Value Added (GVA).
2. Microfinance: RBI defines microfinance as collateral-free loans to households with annual income up to Rs.3 lakh.

3. Significance of Microfinance in India:

• Boosting Entrepreneurship: MFIs offer small loans, promoting entrepreneurship and business development, which in turn leads to economic growth and job creation.
• Financial Inclusion: MFIs promote financial inclusion by offering credit and services to those excluded from traditional banking, enabling savings, education, healthcare investment, and entrepreneurship.
• Poverty Reduction: Microfinance is a financial system that provides small loans to the poor, thereby reducing poverty and enhancing their standard of living.
• Empowering Women: Microfinance significantly empowers women by providing financial resources, promoting economic independence, and enhancing their social standing.
• Supporting Rural Development: MFIs aid rural development by offering small loans to farmers and entrepreneurs, thereby boosting agricultural productivity and contributing to economic growth in rural areas.

4. Challenges with Microfinance in India: The issue of over-indebtedness, high interest rates, lack of financial literacy, operating in remote areas with inadequate infrastructure, political interference, and lack of regulation are significant challenges.

Government Initiatives for Microfinance in India

1. SHG-Bank Linkage Program: The goal is to boost the loan volume of Self-Help Groups (SHGs) and shift their money lending from non-income-generating activities to production-based ones.
2. E-shakti Programme: The goal is to digitize the accounts of various SHGs and ensure their members are included in the Financial Inclusion program.
3. PM SVANidhi: a special micro-credit loan facility providing affordable working capital loans to street vendors.

Way Forward

The focus is on enhancing the regulatory framework, enhancing financial literacy, fostering partnerships, and ensuring social impact

 

 

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