In India the majority
of people lives in rural areas and depends on agriculture-connected activities.
However, a rare people own the most of the land and majority of the poor have
no land in their ownership. Since independence various measures taken by the
government have improved the situation to some level. But there is a little
scope to improve the welfare of the poor based on land-based activities. In
this situation credit plays a vital role for the disadvantaged. Keeping this in
mind various credit linked poverty alleviation programmes have been taken up
from time to time such as Integrated Rural Development Programme.

            For the economic empowerment of the
weaker segments commercial banks were nationalized in 1969. Consequently land
development banks and cooperative banks were established across the country. To
addition credit provision in the rural areas, Regional Rural Banks were
established in 1975. They have played an important role in the implementation
of credit-linked scheme like Integrated Rural Development Programme. This
subsidy-linked programme failed to achieve its objective owing to wrong
identification of beneficiaries, leakages, misuse of subsidies and low
recoveries.

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            Despite the infrastructure, huge
poverty-linked alleviation programmes and statutory obligations, 64.5 per cent
of the poor were still borrowing from informal sector (2011). There are a
number of restrictions of the formal sector in providing credit to the
poor-cumbersome procedure; insistence on collateral/guarantee, mobilization of
promoter’s contribution, etc. the concept of micro finance was introduced for overcoming
the prevailing restriction and providing adequate credit to the poor. It
mobilizes saving and supplements it with loan from the financial institutions.1
 

            Microfinance
is an option to resolve this problem of poor people. Microfinance is the
provision of a wide range of financial services for example deposits, loans,
payment services, money transfers, and insurance to poor and low-income
households and, their micro enterprises. Microfinance is an approach that has
been confirmed to empower people everywhere in the world to pull themselves out
of poverty.

 

Relying on their traditional skills and entrepreneurial natures,
recipients of small loans, other financial services, and support from local
organizations called microfinance institutions (MFIs) to start, establish,
sustain, or enlarge very small, self-supporting businesses. A key to
microfinance is the recycling of loan rupees. As each loan is repaid usually
within six months to a year the money is recycled as another loan, thus
multiplying the value of each rupee in defeating global poverty, and changing
lives and communities.2