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MICROFINANCE By: Vandita Tiwari (Great Lakes Institute of Management, Gurgaon) Microfinance, in truth, is a service which provides finance to low-income individuals or group of individuals who lack access to traditional or non-traditional financial services. The concept of microfinance has dual objectives of combating poverty and at the same time to help in the development of financial system of the country. It is a method of creating “economic and social development from below” by providing small loans to poor households who don’t have ability to provide collateral to banks and financial institutions for loans in the normal course. Micro finance or microcredit includes both formal and informal money lenders such as commercial banks, loan sharks, credit cooperatives etc. Though microfinance or microcredit are often used interchangeably, there is a distinction between the two. Microcredit is the act of providing small loans whereas microfinance encompasses other financial services such as banking facilities, insurance etc. Microfinance institutions sometimes provide social services such as educational facilities, clinical care and more.
Source: Journal of Global Health Reports
According to a GlobalNewswire report, global market for microfinance is predicted to reach US$ 313 billion by 2025. Driven by the widening gap in the distribution of wealth in the economy, microfinance initiatives are used to provide finance to those stricken by extreme poverty. It opens new opportunities for people to pull themselves out of the vicious cycle of poverty by providing access to business or education. It also aids the poor in managing their finances and can be used to leverage economic opportunities which brings about stability for their families. Over time microcredit and microfinance have assisted in supporting small and medium enterprises (SME’s) and overall sustainable development through inclusive financial innovation. The MFI institutions have made extreme headway in helping poor to get out of their poverty, especially in the countries along “the Silk Road Economic Belt” and “Maritime Silk Road”. “Self-sufficiency” is the main indicator used internationally to measure sustainable development of MFI’s. This indicator has further two levels- (1) Operating selfsufficiency (OSS) and (2) Financial self-sufficiency (FSS).
