2. Meaning
•Microfinance is a banking service provided to
unemployed or low-income individuals or
groups who otherwise would have no other
access to financial services.
•Microfinance allows people to take on
reasonable small business loans safely, and in
a manner that is consistent with ethical
lending practices.
3. Overview
•Microfinance is a way to provide capital to
low-income business owners who may be
excluded from traditional credit and lending
options. Microfinance offerings include small
loans – called microloans, savings accounts
(microsavings) and insurance policies
(microinsurance).
4. Features
The salient features of microfinance include:
•Loan borrowers are from low-income groups
•Loans are of a very small amount – microloans
•Loans are offered for a short duration
•These are collateral-free loans
•High frequency of repayment
•Loans are generally taken for income-
generation purpose
5. History
•The term “microfinancing” was first used in
the 1970s during the development of
Grameen Bank of Bangladesh, which was
founded by the microfinance pioneer,
Muhammad Yunus. In 1976, Yunus
institutionalized the approaches of
microfinance, along with the foundation of
Grameen Bank in Bangladesh.
6. India’s Microfinance Story
•In India, the first initiative to introduce
microfinance was the Self-Employed
Women's Association (SEWA) in Gujarat, by
Ela Bhatt which established SEWA Bank in
1974. Since then, this bank has been providing
financial services to individuals who wish to
grow their own businesses in rural areas.
7. In India, there are two channels through which
microfinance operates:
•SHG – Bank Linkage Programme (SBLP)
• Microfinance Institutions (MFIs)
8. Self Help Groups (SHGs)
•The SHG-Bank linkage programme in India has
savings accounts with 7.9 million SHGs and involves
the participation of regional rural banks (RRBs),
commercial banks and cooperative banks in its
operations.
•The origin of SHGs in India can be traced back to the
establishment of the Self-Employed Women’s
Association (SEWA) in 1972.
•The western and southern states of India have
attracted the largest number of microfinance loans
in the country.
9. Microfinance Institutions (MFIs)
•The microfinance institutions lend through
the concept of Joint Liability Group (JLG). JLGs
are a group of 5-10 members who join hands
to avail of a bank loan, either individually, or
collectively. The loan is provided against a
mutual guarantee.