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. Relying 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 large variety ofactors provide microfinance in India, using a range of microfinance deliverymethods. Since the founding of the Grameen Bank in Bangladesh, various actorshave endeavoured to provide access to financial services to the poor increative ways.
Governments have piloted national programs; NGOs have undertakenthe activity of raising donor funds for on-lending, and some banks havepartnered with public organizations or Made small inroads themselves in providingsuch services. This has resulted in a rather broad definition of microfinanceas any activity that targets poor and low-income individuals for the provisionof financial services. The range of activities undertaken in microfinanceincludes group leading, individual leading, the provision of savings andinsurance, capacity building, and agricultural business development services.Whatever the form of activity however, the overarching goal that unifies allactors in the provision of microfinance is the creation of social value.Microfinance is therefore defined as much by form as by intent of the lender orfinancial service provider.4 Micro finance canbe defined as provision of thrift 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, repaired or traded; provide services: work for wages andcommissions; gain income from renting out small amounts of lands, vehicles,draft animals or machinery and tools; and to other individuals and local groupsin developing countries in both rural and urban areas”. – MargueriteS. Robinson “Micro finance is aprovision of thrift, credit and other financial services and products of verysmall amounts to the poor in rural, semi-urban areas for enabling the poor toraise 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.
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 broad range of financial services such as loans,insurance, savings etc. provided to the people of low-income groups”.
Microfinance plays a revolutionary role in any country’s economy. It helps thepoor people to fulfil their basic needs and safeguard them from any risks.1.3. 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, steady employment and a verifiable credit history and thereforecannot meet even the most minimal qualifications to gain access to traditionalcredit. Microcredit is a part of microfinance, which is the provision offinancial services to the very poor; apart from loans, it includes savings,microfinance and other financial innovations.
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 many cases, begin tobuild wealth and exit poverty. Due to the success of microcredit, many in thetraditional banking industry have begun to realize that these microcreditborrowers should more correctly be categorized as pre-bankable; thus,microcredit is increasingly gaining credibility in the mainstream financeindustry and many traditional large finance organizations are expectingmicrocredit projects as a source of future growth. Although almost everyone inlarger development organizations discounted the likelihood of success ofmicrocredit when it was begun in its modern incarnation as pilot projects withACCION and Muhammad Yunus in the mid-1970s, the United Nations declared 2005the international year of microcredit.