FINANCE FOR THE POOR: FROM MICROCREDIT TO MICROFINANCIAL SERVICES IN INDIA

This paper reviews the achievements of the ‘microfinance revolution’, through reference to the now extensive literature. It finds that there are many opportunities to improve and innovate. To illustrate this finding, the paper concentrates on examining what we need to know to design and deliver better financial products to the poor, especially the poorest. Microcredit is the extension of very small loans (microloans) to those in poverty designed to spur entrepreneurship. Microcredit is based on different set of principles, which are distinguished from the general financing or credit. Microcredit emphasizes building capacity of a microentrepreneur, employment generation, trust building and help to the micro entrepreneur on initiation and during difficult times. This paper has discussed about the Microcredit which was introduced in India during eighties. It had a great impact to the urban poor community since they were not considered “creditworthy” enough. In such a scenario, microcredit came as a blessing because micro-credit institutions lend small sums of money at a reasonable interest rate without any collateral to people who need it the most which led to the development of this financial innovation in India. This paper also discusses about the welfare effects of microcredit, which plays an important role for the social and economic development of the country such as reduction of vulnerability, formation of micro clusters, to eradicate poverty, child labour, helps in skills training, women education and empowerment, creation of wealth and assets and alleviate the rural masses from the clutches of poverty hence improving their standard of living.