Recent Development of Microfinance in India

36 Pages Posted: 5 Jul 2014

See all articles by Vivek Tripathi

Vivek Tripathi

School of Management Studies MNNIT ALLAHABAD -211004

Vineet Tripathi

Deemed Universities of India

Date Written: July 3, 2014


With 1.2 billion people and the world’s fourth – largest economy, India’s recent growth and development has been one of the most significant achievements of our times. Over the six and half decades since independence. A number of India’s states are pioneering bold new initiatives to tackle many of India’s long-standing challenges and are making great strides towards inclusive growth. Their successes are leading the way forward for the rest of the country, indicating what can be achieved if the poorer states were to learn from their more prosperous counterparts.

India now has that rare window of opportunity to improve the quality of life for its 1.2 billion citizens and lay the foundations for a truly prosperous future – a future that will impact the country and its people for generations to come.

Microfinance is being considered as a very powerful tool for uplifting the economic conditions of poor through group approach. (Juja.S.V, 2014).

In the broader sense, the aim of microfinance is to develop habits and financial vision among the rural poor, such that they are able to save, seek credit and know several finance related aspects and thus improve their financial position and living standards. The focus of microfinance is to facilitate the shift from induced development from the above to initiated development from below. Banks are already doing their bit towards this end but a lot is yet to be done. The vast potential and opportunities of microfinance in India are yet to be fully tapped. (Raghavan.R.S).

This paper analyzes the potential impact of social entrepreneurship, and especially microfinance, on development in Africa. Social entrepreneurship could play an important role in development.

However, social entrepreneurship has limited potential for structural transformation and poverty alleviation, which calls into question the recent prioritization of social entrepreneurship. Microfinance, is a useful tool to alleviate poverty among poor people through income generation resulting from their involvement in microenterprise activities. It further calls for consorted efforts by responsible government agencies and commercial banks to scale up outreach of microcredit services to poor people through among other initiatives provision of financial and technical support to member based savings and credit associations. Microfinance, especially given to poor people business operators, does contribute to poverty alleviation through an additional income, which can be used to finance a wide range of household expenditure. Microfinance, whose one of its approach involves, issuing small loans called microcredit, is not an “illusion” as contended by Bateman and Chang (2009) nor “the world of make believe” as concluded by Lont and Hospes (2004).The micro Finance was intended to develop the poor people. The commercial banks and micro finance institutions are playing an essential role in payout of micro finance. The ultimate aim of microfinance is to strengthen the economic. Micro finance is a novel approach to ‘banking with the poor’ and this system attempts to combine lower transaction costs and high degree of repayments. The most important cause of rural indebtedness is poverty. The farmer’s income is low and he has no past savings. Whenever there is any crop failure, illness, accident, sudden fall in agriculture price, etc. the Indian farmer borrows year after year but he is not in a position to repay all the debts. As a result, the debt of the farmer goes to increasing. Rural micro credit is essentially helpful for farmers and promoting self-employment in the informal sector of the economy. India’s microfinance experiments are much differ from the more substantial microfinance institutions and programmes of its neighbors countries. (Uttam Pau, 2014).The government of India through the Ministry of Agriculture Food Security and the Cooperative credit sector in India may design training programs to enable poor people operators of microenterprises form member-based savings and credit societies. The author of this article anticipates that this is the only effective way to curb the ever growing number of individual money lenders who normally charge superficially high interest rates. Microfinance as a tool has been a gradual and evolutionary growth opportunity to people from rural India resulting into better living standard and quality of life for poor people. Microfinance is emerging as a powerful instrument for poverty alleviation in the new economy worldwide and in this research papers it highlight the role of micro finance in both global and Indian country context. The Indian microfinance is an important example of home-grown Innovation, and is currently receiving a much-deserved increase in attention at home and abroad. Indian microfinance has demonstrated a welcome willingness to innovate and to think afresh about financial services for poor people. The field of microcredit (otherwise known as microfinance, micro lending, or Micro capital) has expanded rapidly since the 1980s as an economic means of Lifting people out of poverty. Generally, Grace (2012) microfinance has been accepted as an Effective method for empowering both individuals and communities. Basic tenet of microfinance: The needs for lending programs vary a great deal around the world due to cultural differences, and the success of each must be evaluated in a geographic context. The industry of microfinance cannot be standardized due to these vitally important differences, and there is little organization which has the ability to watch over the practices of individual lender. As a result, microfinance institutions are largely free to practice autonomously. This paper will investigate how the microfinance in India reflects larger issues in the field of microfinance. According to Alakpa, S. (2014) and Falaiye (2003) described Microcredit, as a system of providing small loans to those who are less endowed economically which leads to their being excluded from normal banking institutions. It is seen by many as one of the ways to help the poor increase their income and productivity. Microcredit plays an important role in agricultural development.

One element of an effective strategy for poverty reduction is to promote the productive use of farm inputs. This can be done by creating opportunities for raising agricultural productivity among small and marginalized farmers. Microcredit is particularly relevant to increasing productivity of rural economy, especially agricultural productivity in such an environment where economic growth is occurring. Microcredit may enable small and marginalized farmers to purchase the inputs they need to increase their productivity, as well as financing a range of activities adding value to agricultural output (Nosiru & Omobolanle 2010). Micro finance plays an important role for upliftment of rural India. It has emerged in India in late 80’s to fulfill the need of poor families to who Banks & financial institutes denies loan as they don’t have security/mortgage. Even today more than 60% population resides in Rural India and they are directly or indirectly depend upon agriculture to fulfill their needs and more than 75% of the farmers are in economically worsening condition. India is an agrarian economy and even today more than 2/3rd population of the nation depends upon Agriculture either directly or indirectly for their earning. The class which belong to agriculture and its allied activities is resides in rural India. Out of the total farming community more than 80% farmers are small and marginal farmers and they are economically poor. Due to this they are below the poverty line. This is resulted to remain socially & economically backward. As these farmers are poor their bargaining power is also less than other economically sound farmers. So, they don’t get the benefits of national economic policies. To improve their status they require economical help from Government, Banks and financial institutes. But even after recommendations of government, Banks & Financial institutes are reluctant to provide loan to them in fear of increase in NPA as they don’t get any mortgage and other securities in exchange of loan. (Vasantrao D. R., & Rahul S. K.2014).

Keywords: Microfinance, Microcredit, Poverty Alleviation, Microfinance Institutions, financial services, poor microfinance income, alleviating poverty, economic development

JEL Classification: 16, 20

Suggested Citation

Tripathi, Vivek and Tripathi, Vineet, Recent Development of Microfinance in India (July 3, 2014). Available at SSRN: or

Vivek Tripathi (Contact Author)

School of Management Studies MNNIT ALLAHABAD -211004 ( email )

782,Mutthiganj Allahabad
782,Mutthiganj Allahabad
08874397416 (Phone)


Vineet Tripathi

Deemed Universities of India ( email )


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