Microfinance is offering business finance to low-income groups. It is a series of small-portioned finance capsules. In India, business finance in micro-capsules makes sense, given the vast amounts of under-financed sectors. Many classes of the society have absolutely no access to business finance avenues. Microfinance was born, to defeat this situation.
In India, microfinance has enabled women to be self-employed. Even though business finance was delivered, the span was limited. Due to lack of knowledge, and lack of business finance providers in this category, microfinance didn’t pick pace. Microfinance still remains a flapping bird, unable to fly.
Although microfinance is a terminology used now to associate it with a business finance lending strategy, microfinance has always existed before. Post-independence, the Indian government directed banks to give business finance to priority sectors like agriculture. Loans on concessional rates were given to farmers and peasants during that time. Statistically, South Asian countries account for most of the micro-business finance consumption. World Bank estimates have it that close to ninety percent of India’s population has no access to any kind of business finance.
Lack of proper organization of these loans, still vested the microfinance power to the corrupt moneylender. Charging unruly interest rates, the money lender capitalized on the helplessness of the cattle class people of India. But now things are changing. People are awakening to the realities of microfinance.
Many microfinance institutions have been setup in India. Life and survival promotion organizations like BASIX were the first ones. Other microfinance institutions (MFIs) followed suit. Most MFIs were NGOs. They all came with an orientation to uplift the poor. But problems started happening when the oil well of microfinance was discovered, and perspectives started changing.
Some basic methodologies adopted by MFIs to solve business finance issues of clients are to use a poverty survey to identify potential areas to target. Then, debts of all people are clubbed together by getting them to form groups. A wholesome loan is given against the debt without collateral, and each debt-member has to pay his/her debt. By doing this the repayment of the debt is eased out.