Microfinance : An issue and future
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What is Microfinance
Evolution of microfinance in India
Microfinance has been in practice for ages through informally
Legal framework fro establishing the co-operative movement
set up in 1904 .
Reserve bank of India Act , 1934 provided the establishment
of the Agriculture Credit Department .
Nationalization of banks in 1969 .
Regional rural banks created in 1975.
Set up of gamin bank in Bangladesh by Muhammad. Yunus in
NABARD established as a apex body for rural finance in 1982
Scenario of Microfinance in India
India population growth is more than 100 Crore , around 32
Crore are living below the poverty .
only 20 % access loan from formal sources and 80 % from
informal sources .
out of that 20% , only 14% have access to microfinance .
During 2011-2012 ,the microfinance through MFI channel
has grown 16.25 % in 2012 in terms of client out reach and
13.75% in term of credit portfolio .
Customers of microfinance are “ small and marginal
farmers”, “rural artisan and economically weaker sections” .
Salient feature of microfinance
Borrowers are from the low income group.
Loans are of small amount – micro loans.
Short duration loans.
Loans are offered without collaterals.
High frequency of repayment.
Loans are generally taken for income generation purpose.
Issues of microfinance in India
High rate of interest
Lending for non productive purposes.
Multiple borrowing and lending
Malegaon report on MFIs
On the recommendation of Malegaon report , RBI put up a
regulation on MFIs , by put a cap on lending rate of MFIs at
26 % per annum and a margin cap of 12 % over cost of funds,
whichever is lower .
In order to control overleveraging, RBI laid down rule that
only two MFIs lend to one borrower and both together cannot
provide loans beyond Rs50,000.
For controlling coercive practices , RBI also set up a
grievance redressed machinery .
Problem face by MFI
In ability to generate fund .
Drop out and migration of Group members .
Legislation and regulation by RBI to a great extent addressed
the flaws in MFIs in India. It can play a big role in poverty
elevation , empowerment and sustainable development.