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Role Of Micro-Finance In An Emerging Society
CII-IQ consults and works closely with Village Financial
Services in building its Quality Management Systems
Finance is the life of the economy and if it is micro finance then it has a great role to reduce poverty and raise living standards of the under privilege section of our society. In India microfinance is now being seen as an important ally of the mainstream financial system in serving the population outside the purview of accessing finance from institutionalized sources. It is estimated that there are around 800 microfinance institutions (MFIs) operating in our country. It is also estimated that potential market of microfinance services is estimated at 75 million households spread across India. The credit demand from these segments was initially predicted to be in the range of Rs.50,000 crore. However recent estimates have put the credit demand by small and marginal farms and micro enterprises at Rs.135,000 crore.
The Census of India, 2001 estimated the Indian population to be 1028.6 million. It is also estimated that 26% of the people are bellow the national poverty line, this would translate to over 27 crore poor people are living in our country. It is also very heartening to know from the NSSO data 2003 that only 27% of our population got loans from any formal financial institutions.
So it is a big question that how a poor family met their financial needs? Most possibility, go to a local moneylender and borrow money with very high rate of interest ranging from 3% - 7% per hundred per month (36% - 84% per year) against security of some form of jewelry, valuables and even utensils are mortgaged. This is the scenario of our country after almost 60 years of independence and after the 38 years of Bank nationalization.
Everybody now able to understand the need of alternative channels of credit delivery for the poor. Poor need very small amount of credit but very timely and repeatedly so that they can use the credit for any kind of income generating activity. Here the role of Microfinance Institutions (MFIs) starts. Now it is proved worldwide that poor don't expect grants, they need loan and they feel proud to repay back the loan with interest.
The clients of microfinance are mostly female heads of households, retrenched workers, small farmers, and micro-entrepreneurs - who are already involve in any kind of economic activity or want to start the same. If we categorize poor people, then they will fall into four poverty levels: destitute, extreme poor, moderate poor, and vulnerable non-poor. The methodologies and operational structures also to be developed by the MFIs that meet the financial needs of these client groups in a sustainable manner.
Poor people, with access to savings, credit, insurance, and other financial services, are more resilient and better able to cope with the everyday crises they face. Even the most rigorous econometric studies have proven that microfinance can smooth consumption levels and significantly reduce the need to sell assets to meet basic needs. Some of the MFIs are also offering micro insurance for their clients. MFIs are trying to negotiating with Insurance Companies and making the tie-up with them and extending the insurance services to the poor households. With access to micro insurance, poor people can cope with sudden increased expenses associated with death, serious illness, and loss of assets.
Access to credit allows poor people to take advantage of economic opportunities. While increased earnings are by no means automatic, clients have overwhelmingly demonstrated that reliable sources of credit provide a fundamental basis for planning and expanding business activities. Many studies show that clients who join and stay in programs have better economic conditions than non-clients, it is also shown that over a long period of time many clients do actually graduate out of poverty and after a certain period they are able to access the formal credit from Banks.
Along with credit and insurance, the other support services like skill development training, marketing linkages, different awareness generation etc can be done under microfinance program.
By reducing vulnerability and increasing earnings and savings, financial and other support services allow poor households to make the transformation from "every-day survival" to "planning for the future."
The Author Mr Kuldip Maity is a Microfinance Practitioner & Managing Director,
Village Financial Services Pvt. Ltd.
Email: kuldip@village.net.in
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