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In 1974, India’s first Microfinance Institution (MFI), Self Employed Women’s Association (SEWA) Bank was registered as a cooperative bank.
- Nobel Laureate Muhammad Yunus laid the foundation of modern MFIs with establishment of Grameen Bank in Bangladesh in 1976.
- RBI is regulatory body for MFIs operating in country.
- Malegam Committee (2010) constituted by RBI recommended for holistic framework to regulate NBFC –MFI.
About Microfinance (Microcredit)
- It offers financial services like small value loans to marginalized and poor individuals who lack access to formal banking services.
- It includes multiple services like saving accounts, fund transfer, micro insurance, etc.
Significance of Microfinance Sector
- Potent tool for financial inclusion and socio-economic transformation.
- Empowerment of Women through Self Help Groups.
- Poverty reduction and overall rural development.
Challenges with Microfinance Sector
- High Transaction Cost for MFIs: Involves extending services to a large number of small debtors.
- Absence of Collateral: Making it difficult to secure offered loans.
- Higher Interest Rates: Compared to those charged by commercial banks.
- High Credit cost: MFIs frequently struggle to avail of cheap funding.
- Others: Low financial and digital literacy among poor borrowers; persistent reliance on moneylenders, etc.
Initiatives taken by Government for Microfinance in India
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