BISWA: Fostering Inclusive Growth through Microfinance

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Microfinance, which involves offering a range of financial services to the poor, entails mobilization of savings, extension of small loans, micro insurance, and capacity building of the beneficiaries. The loans, usually in the range of Rs.3 5,000 to Rs.20,000, are meant for the vast majority of people in developing countries such as India who had traditionally been considered non-bankable. In the Indian context, most of the microfinance service providers are involved in extending only micro credit. India, despite having one of most widespread banking infrastructures in the world, had, millions of people who, even in till mid-2010, did not have access to basic banking services such as savings and credit.

In the mid-1990s, about 70% of India's population lived in the rural areas, which accounted for only 30% of the bank deposits. About 70% of the rural poor did not have bank accounts and 87% of them did not have access to credit from banks.⁴ In the same period, the share of non-institutional agencies including traders, money lenders, friends, and relatives in the outstanding cash dues of rural households was 36%.⁵ The situation among the urban poor was not much better. In the past, both public and private banks in India perceived rural banking as a high-risk, high-cost activity i.e. it was seen as being marked by high transaction costs and high levels of uncertainty...

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3] Rs.= Indian rupees (INR). As of July, 2010, US$1 was approximately equal to Rs. 46.90.
4] World Bank – NCAER Survey.
5] All India Debt and Investment Survey, 1992.

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