Micro-finance in India

In India more than a quarter of its population is below the poverty line. To reduce these numbers and provide a better livelihood is what micro finance focuses on. It is known to grow now more than ever without any speed breaks in sight. Micro finance in India is provided by 3 main bodies; the government, the private sector and charities.

With respect to rural development; micro finance has the following objectives-

To meet the basic needs of planning for marriages, child birth, education, homes, old    age and funerals.

To help in providing funds for personal emergencies like accidents, redundancy and death.

To help in providing funds for act of god like earthquakes, floods, volcano eruptions, cyclones and also for manmade events like terrorist attacks or wars.

Providing access to finance and credit facilities for investment opportunities like helping to start up a business enterprise, buying of land or any huge equipments required for starting up of the business or improvement of housing facilities.Achieve universal education and in turn eradicating extreme poverty and hunger.


    In order to achieve these objectives NABARD started the concept of micro finance in India. To enable this there is a direct linkage between Self-Help groups-NGOs-Banks. This means that the SHGs are under the shelter of NGOs. These NGOs are entitled for reimbursements in terms of credit facilities by the banks. This direct linkage is a SHG-Bank linkage program which was started in 1992. The SHG- bank linkage model has benefitted more than 11 million rural families.  Loans issued to these families are small in amount with an average amount of Rs. 1776 per family. MFIs have now reached more underdeveloped areas by covering around234 of the 331 poorest districts identified by the government.

      Besides these merits there are a certain hinges which micro finance still has to bridge. These gaps majorly exist in the northern states like the BIMARU states which are Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh. MFIs have still not reached the states of the north eastern India. However they have still shown good performance in the states of Madhya Pradesh, Uttar Pradesh, Maharashtra and West Bengal compared to the SHG linkage program. The astonishing part is that the MFI lending has exceeded the volume of bank lending to SHGs in Karnataka which is majorly covered by banks.

Akanksha Chaturvedi