Authors

1. Dr. Shalini Talwar

Affiliation

• Associate Professor Sinhgad Institute of Business Management Mumbai

Abstract

Microfinance, or the practice of extending micro loans to small borrowers who have traditionally been financially excluded, has become one of the most popular financial inclusion and antipoverty strategies in the world. Microfinance has been in existence in the world since centuries but it is taken a formal form in different parts of the globe at different points of time in the past century.
Microfinance in India can be traced back to the early 1970s when the Self Employed Women's Association (“SEWA”) of Gujarat formed an urban cooperative bank, called the Shri Mahila SEWA Sahakari Bank, with the objective of extending banking services to poor women employed in the unorganized sector in Ahmedabad, Gujarat. Inspired by the resounding success of the modern microfinance innovation, Grameen Bank, pioneered Muhammad Yunus in Bangladesh, microfinance in India has evolved from small non-governmental organizations lending less than Rs. 500 to women to buy sewing machines or vegetables to sell at market, to private banks that consider it to be a profitable undertaking.
Since their origin in 1970s, Microfinance institutions (MFIs) have contributed significantly in alleviating poverty and in reducing financial exclusion in India. But with the move of microfinance beyond the purview of development institutions and the entry of the private sector, the growing divide between the for-profit MFIs and traditional not-for-profit ones is undermining the credibility of the sector.
The author has written this paper to study and evaluate the role of microfinance in both, the deepening and widening of the outreach of financial services to rural poor and hitherto unreached masses. The study traces the birth of microfinance in India, its subsequent rise to glory with emergence of exemplary organizations like SKS Microfinance and the recent crisis that has mired it in deep controversies.
The paper is intended to present a balanced view of the extent of financial inclusion in India and to explore the way forward for microfinance from this point onwards. The author will also briefly reflect upon the possibility of a bigger role for microfinance institutions in increasing the penetration the financial services in the unreached areas. This is quiet significant because there is a increasing realization in the policy circles that commercial banks may not be the right conduit for reaching out to financially excluded.

Keywords

Microfinance,, financial inclusion, SKS Microfinance , unorganized sector

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