Role of Microfinance and the Economy of Bihar

Microfinance refers to small savings, credit and insurance services extended to socially and economically disadvantaged segments of society. Microfinance provides financial products and services to masses especially underprivileged and disadvantaged people at an affordable terms and conditions. Over the years it has emerged as a powerful tool for financial inclusion in India. Financial inclusion is a new paradigm of economic growth that plays major role in driving away poverty from state like Bihar. Financial inclusion is the top priority of any developing or backward state like Bihar in terms of economic growth and advancement of society. It enables to reduce the gap between rich and poor people. Presence of sound financial system is a symbol of the robust pillar of growth, economic prosperity and overall development of any economy. The present study aims to examine the impact of microfinance on growth of the state economy over a period of ten years. Secondary data has been used which has been analyzed by multiple regression model as a main statistical tool. Results of the study found negative and insignificant impact of total client outreach and credit growth of microfinance on the GSDP of the Bihar, whereas Total savings growth was found to have positive and significant impact on the GSDP of Bihar.