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Though selfhelp groups have come up in various parts of the country, the sector is largely unorganized as of now. Both microfinance institutions and self-help groups have seen a steep growth curve in India in recent years. However, the sectors potential remains largely untapped because of a general lack of awareness among its probable clients. There are many misconceptions associated with the microfinance sector in India it is often assumed that a microfinance institution (MFI) only lends money to poor people in villages. It is true that an MFI provides a suitable platform for financing the economic activities of poor people; however, an MFI can also be focused on, say, empowering working women. Also, microfinance can be availed of in villages as well as cities. Apart from providing credit, these institutions also provide facilities like insurance and savings accounts. In some cases, they also play the role of a social intermediary and help solve local disputes. The growth of such institutions has shattered the age-old notion that the poor are incapable of repaying loans; in fact, the amount of outstanding loans in this sector has progressively reduced with time. The main aim of MFIs is to make financial services available to about four-fifths of the population of the country, which is incapable of borrowing credit from banks. There is also a growing need to reach out to states in the central and eastern regions that are currently underserved by these facilities. NGOs have played a leading role in this field. Recently, attempts have been made to raise capital for MFIs through the stock market; initial public offerings for many MFIs have been offered. This leads to a conflict of interest in microfinance institutions. Since MFIs lend money at very low interest rates, they are largely non-profit organizations. However, once their IPOs are offered, they come under pressure from investors, who want MFIs to charge high interest rates so that shareholders reap high dividends. Sometimes, microfinance institutions form partnerships with major banks to raise capital. In this case, large banks like ICICI lend money to MFIs, which in turn lend it to poor people and collect the interest. This partnership model is gaining popularity as major banks start funding MFIs. The microfinance sector has tried to introduce modern technology by making use of computerized information systems that can keep a record of a large number of transactions and branch accounts. It has also tried to introduce smart cards that have unique ID cards and biometric information, like fingerprints, that can be used to keep track of customers. Whether these changes can help to make loans more accessible to those in need remains to be seen. Although microfinance institutions have provided relief to the economically active poor, there is a strong need to improve the quality and spectrum of the services offered by them.
sense of doubt and fear in the minds of private firms which believe that MF is full of risks and uncertainties. What the Government needs to do, in this financial year, is provide incentives to firms and companies to go ahead and set up MFIs in rural India. They need to alter the entire framework so that the environment becomes more conducive to firms. Even NABARD, the apex institute for rural finance, should play a very active role in promoting such kinds of private undertakings. MFIs basically act as an intermediary between the financial institutions and Self Help Groups (SHGs). This link needs to be strengthened. The Eleventh five year Plan aims at achieving a 4% growth rate in the agricultural sector. Even though this may seem like an uphill task, it is well within our reach if strategies like microfinance are given more importance. Microfinance as a tool is so useful that it serves more purposes than one. Apart from improving health and education standards, it also ensures gender empowerment. The latter is possible as large parts of these MF deals take place through women. Earlier, India believed in the trickle down effect and assumed that a very high growth rate would lead to more development and would consequently raise the standards of living. However, what has happened is quite the contrary. The Government needs to learn from its past mistakes and implement a down to up approach which involves strengthening the base of the country by mobilizing funds in rural India. I would want to conclude by reiterating something I had said before, The poor stay poor, not because they are lazy but because they have no access to capital. The flaw isnt in the concept, but in its implementation.