Micro Finance and Financial Inclusion in India

Many traditional banks have provided finance to only privileged people with sufficient collateral, because there is a high risk of default in case of low income people. But Micro finance has achieved success as a tool in providing credit to low income people. While there are reservations about the efficacy of MFIs in handling public money, their growth and achievements have been noteworthy. In addition it has even led to economic and social empowerment of women by encouraging them to carry out economic activities, leading to their overall growth. Thus, Micro finance is the step toward achieving financial inclusion. The main aim of financial inclusion is to make the financial services accessible to lower income group people and that is where role of micro finance comes in. For the achievement of financial inclusion, the most important goal is to make the banking facilities available to all the unbanked areas and to each and every household. This is made possible by the various Micro Finance Institutions (MFIs) whose main aim is to provide small amount of loans to lower income group people, without the collateral securities. Thus, MFIs through the various models are helpful for the development of lower income group people, thereby indirectly fulfilling the purpose of financial inclusion. This paper examines the role of microfinance in empowering people and realizing financial inclusion in India. They have immense opportunities in microcredit given increasing demand for rural finance and the inadequacy of formal sources. It further states that they have played a commendable role in promoting Self Help Groups and linking them with banks. The paper examines recent MFI experiences and identifies a need for qualitative growth.