Micro finance and its importance in the rural sector

       Micro finance as the name suggests is a banking service to enable availability of finance to the unemployed or low income group individuals or groups. The target group of individuals who mainly avail these services are small time entrepreneurs who lack access to basic banking and other related services. 

       Before the formation of a proper micro finance system people used to borrow money from informal money lenders and save their money with the informal money collectors. However it was soon realized that it is important to have a proper regulated system in place so that the low income group people could also avail the banking facilities and thus emerged the service of providing micro finance. 

       Micro finance as a term is often confused with micro credit assuming these two terms are synonyms. Instead in reality micro credit is just one aspect of micro finance. Micro finance as a whole include providing for loans, insurance, money transfers, payments, accepting deposits and remittances. The aim is to provide a varied range of services as well as products to meet all the financial needs of the individuals, households and enterprises. To meet these varied needs banks also use unconventional methods such as group lending and accepting other forms of collateral which would not otherwise be accepted.

        In the global market it is already assumed that micro finance is going to facilitate in successfully reducing poverty. Many governments and donor communities believe that liquidity constraint is the main constraint hindering the poor households. If this problem is adequately addressed it would help to curb poverty to a certain extent. Micro finance is known to not only break the vicious cycle of poverty by enabling liquidity of funds but also start up a whole new cycle of economic empowerment that leads to increased house hold well being. 

Global Market of Micro-finance

Source: Progress Microfinance – implementation report 2011

       Micro finance for rural development works on the basic concept that when these sectors have access to finance for lending, savings, insurance, housing or remittances it will help to increase income, assets, security and in turn increasing their confidence in future. The benefits of this would be better access to health facilities and education. When education is imparted deeply it improves the way banking is carried out as well as helps to control population growth.

       To conclude I would like to say that micro finance sector as it grows and deepens the more it will help for the upliftment of the rural sector since they are generally left out while providing financial services. With a little support in terms of finance from the various sectors the low income group individuals could go a long way.

Akanksha Chaturvedi