Introduction:

Micro Finance is a term for the practice of providing financial

services such as micro-credit,micro savings or micro-insurance to poor people.
Suggested by the name,most transactions involved.Small amounts of money.The
most common microfinance product is a micro credit/loan.This tiny loans are
enough for hardworking micro-enterprenuers to start or epand Small business
such as weaving baskets,raising chickens,or buying wholesales product to sell in
a market.!ncome from there businesses provides better food,housing families "
most important,additional income provides hope for a better future.Micro Finance
institutions#M.F.!$are now innovating to help meet there needs%empowering the
world&s poor to improve their own lives.The global repayment rate for micro credit
loan is higher than re-lend this funds to even more clients.'y giving the world&s
poor a hand up,not a hunderet,micro finance can help break the cycle of poverty
in as little as a single generation.
History Of Microfinance:
!n ()*+,an economics lecturer at The ,niversity of
-hiltagong,'angldesh,lent ./* to a group of impoverished villagers.Thirty years
later the lecturer,Muhammad 0unis,won the 1obel 2eace pri3e and microfinance
become the world&s favourite development ideas,that will cure world poverty "
spread the wealth-creating force of capitalism across the globe.Microfinance has
a beguiling Simplicity and a record of Success not 4ust in promoting financial
residence but in achieving other Social 5b4ectives-reaching the ecluded,
empowering women " developing the capacity of small groups of people to take
control of this own lives.Muhammad 0unis Founnded his 6rameen 'ank in()78
to make vary small loans to the poor and uncreditworthy Since then it has leaned
9bout 8billion to more than : billion of the vary poorest in 'angladesh "across
the 9sia Sub--ontinent get remaining entirely Self-Finance.
Historical Development Of SHGs:
The First people in history to demonstrate the power
of S;6s were alcoholics. 9lcoholic ansnivrous was started in()8< to help
helpless alcoholics recover from alcoholism.omething the medical profession had
been unable to do.
!n ():=&s -ivil rights movement began to evolve in many developed
countries as people become aware of their different collective power,.this power
to the peoples movement provided avenues for the development ofS;6
movement.
!n the ()*=s,the emphasis move from mass movement to Small group
movement in some countries.!n ()7=s Self help support system such as Self
help clearing houses,which provide information and referral services linking the
publics the groups and assisted groups to develop were established. 9nother
characteristic trend of the ()7=s was the development of international network of
self help supporters. !n ()78 another international report was published which
covers S;6 of countries including the ,.>,6erany,-anada "1ew ?ealand.
9lthough S;6 have been named in both developing research about them
has mainly taken place in western @urope and 1orthern 9merica. !n S;6s there
are also support groups " it is important to understand the difference between
the two, Some authors have support groups professionally the S;6 the
terminology has now been standardi3ed. 'ut usually S;6 as is the theory
members owned an independent from professional control,however this doesn&t
mean that they don&t have relations with them. 5n the contrary Successful S;6
work in close cooperations with related professionals.
Discussion on the topic
Micro finance has emerged as one of the most sustainable and effective tool for
enabling the poor and disadvantage section of the society to have access to
institutional credit. The !ndian banking on its part has shown a willingness to
eperience and 4oin the micro finance movement in a way that has no parallel in
where in the world. Ahile provision of micro finance has led to increase in
income of the beneficiaries, it cannot take as the panacea for poverty alleviation.
!t has been found that even though micro finance has helped the target groups in
increasing income and rate of recovery has been fairly good. !t has limitation
goals enabling the family to cross poverty line. Till now micro finance programs
has not reached to the interior part because of poverty and illiteracy of people.
Micro finance has enabled the beneficiaries to supplement their income to some
etent. This is possible on account of the fact that micro credit is based on the
philosophy that poor has inherent survival scheme, which keeps them alive even
when they are poor and what is missing is only assets for production.
!nvolvement of S;6s form under other developmental programs in empowering
the weaker section living in rural areas would help in epansion of the activities
and reaching more people in a record time. For eample% assisting the target
group with handloom weavers, handicraft artisans and dairy farmers will be
etremely helpful in overcoming the constrains of micro finance in generating
adeBuate income on a sustainable basis. Microfinance institutions can broaden
their resource base by mobili3ing savings, accessing capital markets, loan funds
and effective institutional development support. 5ne way of epanding the
successful operation of microfinance institutions in the informal sector is through
strengthened linkages with their formal sector counterparts. 9 mutually beneficial
partnership should be based on comparative strengths of each sector. !nformal
sector microfinance institutions have comparative advantage in terms of small
transaction costs achieved through adaptability and fleibility of operations.
Some valuable lessons can be drawn from the eperience of successful
Microfinance operation. First of all, the poor repay their loans and are willing to
pay for higher interest rates than commercial banks provided that access to
credit is provided. The solidarity group pressure and seBuential lending provide
strong repayment motivation and produce etremely low default rates. Secondly,
the poor save and hence microfinance should provide both savings and loan
facilities. These two findings imply that banking on the poor can be a profitable
business. ;owever, attaining financial viability and sustainability is the ma4or
institutional challenge. Ceposit mobili3ation is the ma4or means for microfinance
institutions to epand outreach by leveraging eBuity. !n order to be sustainable,
microfinance lending should be grounded on market principles because large
scale lending cannot be accomplished through subsidies. microfinance can
contribute to solving the problem of inadeBuate housing and urban services as
an integral part of poverty alleviation programmers. The challenge lies in finding
the level of fleibility in the credit instrument that could make it match the multiple
credit reBuirements of the low income borrowers without imposing unbearably
high cost of monitoring its end-use upon the lenders. 9 promising solution is to
provide multi-purpose loans or composite credit for income generation, housing
improvement and consumption support. Microfinance has undergone plenty of
change in the last decade% many trends have emerged and the service scape of
many financial services has changed too% for instance, mobile banking has
evolved over the last several years. 9s innovations gain momentum, some
players are keen to eploit loopholes for immediate advantage which transforms
the entire microfinance. !n !ndia the microfinance technology that has relatively
higher growth in the last few decades is the self-help group #S;6$. This lays
stress on thrift as well as credit and also on the linkage between informal groups
and formal financial institutions. S;6s have been promoted by nongovernmental
organi3ations #165s$, banks and the government. 19'9DC initiated certain
research pro4ects on S;6s as a channel for delivery of microfinance in the late
eighties. 9mongst these, the pro4ect sponsored by the Mysore Desettlement and
Cevelopment 9gency #M0D9C9$ on ESavings and -redit Management of
S;6sFwas partially founded by 19'9DC in ()7:G7*. 9s in all developing
countries, in !ndia development was considered to be the government&s
responsibility and it started several subsidy-linked credit programs where it had a
ma4or role right from the stage of identifying of the borrowers to the disbursement
of credit and subsidy. 9mong the formal institutions, net to government, banks
plays a ma4or role as self-help promotion institutions in !ndia. Microfinance can
play a vital role in bridging the gap between demand and supply of financial
services, if the critical challenges confronting them are addressed. For eample
the microfinance institutions pass on the higher cost of credit to their clients who
are interest insensitive for small loans but may not be so as loan si3e increase. !t
is therefore necessary for MF!s to develop strategies for increasing the range
and volume of their financial services.
Critical Analysis
Microfinance is epected to play a significant role in poverty alleviation,
unemployment and rural development. Microfinance programs have, in the
recent past, become one of the more promising ways to use scarce development
funds to achieve the ob4ectives of poverty alleviation. Furthermore, certain
microfinance programs have gained prominence in the development field and
beyond. The ultimate aim is to attain social and economic empowerment. There
are several microfinance implementing organi3ations which provide small loans
in !ndia. For eample, many 165s and self help groups provided better access
to financial services for poor women. The different schemes provided were group
savings, group guarantees by reducing the operating cost of banks and achieving
high repayments rates , some of them have successfully epanded their services
to thousands of borrowers. 6iven the fact that most of these borrowers would not
have had access to formal financial institutions, that many of borrowers utili3e
the loans to enter and/or epand their informal sector enterprises, and that the
informal sector continues to be an important source of livelihood for many poor
people, for eample CD! #Cifferential Date of !nterest$ loan is provided to the '2H
people for starting any productive activity #(<,=== for productive activity and
/=,=== for housing$. These Micro Finance !nstitutions #MF!s$ may very well have
had a ma4or impact on improving the living standards of millions of poor people
as well on promoting economic development. Thus microfinance has become
one of the most effective interventions for economic empowerment of poor.
9lthough importance of microfinance in the process of poverty eradication is
reali3ed, it faces multiple problems. This is because offering credit to the poor is
a complicated process and sector is still in its eperimental stage. The various
problems of microfinance are as followsI-
2erceived ;igh Disk of Micro @ntrepreneurship and Small 'usinesses
Micro entrepreneurs usually have no collateral to offer to
microfinance providers against loan, they usually lack an alternate source of
income, and have little if any, formal education or training in the area of their
business. 9s a result, commercial banks attribute a high credit risk to micro
entrepreneurs and steer clear of this sector. Micro Finance !nstitutions #MF!s$
are compelled to compensate for this risk by charging high interest rates on
loans. Fortunately, this challenge can be resolved through the idea of group
lending which ensures good repayment rates.
;igh -ost !nvolved in Small Transaction/ micro lending
The small si3es of micro enterprises increase the transaction cost for
MF!s because they cannot process loan in bulk unless good management
information system are in place. This denies MF!s the benefit of economies of
scale, hence they are forced to cover their cost through high interest rates on
loans.
Hack of Cebt and @Buity Funds for MF!s to 2ass on to the 2oor
-apital availability for microfinance is hardly a problem owing to the
rapid growth in the microfinance sector, which has been fueled by attention from
then media and development agencies. @ven though there are plenty of financial
options available for MF!s, there is an emerging shortage of money because of
the current crisis across the globe. 9nother reason for this shortfall is the lack of
awareness of funding sources by MF!s managers.
Hack of -ustomi3ed Solutions for the 2oor
!nappropriate targeting of poor households by microfinance programs
is a common problem, because MF!s fail to understand the varied needs of micro
entrepreneurs. MF!s must spend time in the field with their clients and his/her
business, and then use this research to develop customi3ed tools for each
entrepreneur.
Hack of Micro Finance Training for ;uman Desource in MF!s
Aorking in microfinance sector is a different task as compared to the
traditional financial sector. For instance, microfinance officers and volunteers
need to talk a different language, build lasting relationship with individual micro
entrepreneurs, understand the uniBue needs of the poor, evaluate the borrower&s
sustainability and grasp the cultural nuance of the borrower&s community.
9ll these problems are associated with microfinance% if these
challenges are resolved then MF!s can ensure long sustainability and will be able
to offer effective services to the beneficiaries. ;owever solving these problems is
not a easy task, for this MF!s need to adopt certain strategies.
CONCLUSION
REFERRENCE
Dr. Verma Renu Microfnance and Empowerment of Rural
Women, Kurukshetra monthl !ournal, "eptem#er $%%&,
Vol.'( )o.** pa+es '$.
Ra!esh." and Venkatamma., Microfnance -nstitutions in
-ndia, Kurukshetra monthl !ournal, )o.em#er $%%/,
.ol.'& )o.* pa+es '$.
http011www.na#ard.or+1pdf1md.pdf
http011www.fsdinternational.or+1countr1india1mfssues
http011microfnancehu#.com1$%*%1%$1%/1pro#lems2faced2
#2microfnance2institutes
http011www.microfnance+atewa.or+1+m1document2
*./.$&&/313//&(4fle453.pdf
http011fnance.mapsoworld.com1#anks1microfnance1histor
1html
DEPARTMENT: SOCIAL WORK
NAME OF THE PAPER: SOCIAL POLICY,
PLANNING AND DEVELOPMENT
ASSIGNMENT TOPIC: ISSUES OF MICROFINANCE
AND PROMOTION OF
MICROFINANCE
PROGRAMME IN INDIA,
SUMMITED TO: Dr. Subhabrata Dutta.
SUBMMITED BY
MOUTUSHI CHAKRABORTY
NABANITA DEY
PAROMITA DEB
RAKHI SINHA
MSW 4
th
SEMESTER