Micro Finance in India - Features

Micro Finance is nothing but, Extending the credit and insurance services to socially and economically disadvantageous segment of the society especially rural people. In simple words we can say that Micro Finance is a form of financial services for entrepreneurs and small businesses lacking access to banking and related services. We can also call it as Micro Credit.

The recent task force on Micro Finance has defined it as "provision of thrift, credit and other financial services and products of very small amount6s to the poor in rural, semi-urban or urban areas, for enabling them to raise their income levels and improve living standards. Micro Credit institutions are those which provide these facilities". At present, a large part of micro finance activity is confined to credit only. In India he focus of the movement is on women who constitute a majority of users of micro finance services.

Features of Micro Credit / Micro Finance :

1. The fundamental objective of Micro-credit is to help the poor families to help themselves to overcome their poverty.
2. Most distinctive feature of such credit is that it not subject to any collateral, or legally enforceable contracts rather it is based on trust.
3. It is offered for creating self-employment for income-generating activities and housing for the poor, as opposed to consumption.
4. It was initiated as a challenge to the conventional banking which rejected the poor by classifying them to be "not creditworthy".
5. It provides service at the doorstep of the poor based on the principle that the people should not go to the bank, bank   should go to the people.
6. Generally, these loans are given through non-profit organizations or through institutions owned primarily by the borrowers.
7. In order to obtain loans a borrower must join a group of borrowers. It comes with both obligatory and voluntary savings programs for the borrowers.
8. All loans are to be paid back in installments. New loan becomes available to a borrower if previous loan is fully repaid.
9. Efforts are made to keep the interest rate at a level which is necessary for the sustainability of the programme rather than bringing alternative return.

Experience shows that micro-finance can help the poor to increase income, build viable business, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self empowerment by enabling the poor, especially the poor, especially women, to become economic agents of change.  

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