Micro Finance and Financial Inclusion

In 1976, an entirely new model of development finance emerged not from Delhi’s halls of power but from the forgotten back streets of Jobra, an impoverished village in Bangladesh. Abandoning his classroom, Muhammad Yunus, a professor of economics, ventured out to meet directly with the poor and learn exactly what factors kept them from earning their way out of poverty. By 1983, Yunus had founded Grameen Bank as a formal financial institution. It offered small loans to the poor with no collateral required. The bank successfully employed a group lending model, which holds borrowers accountable to their neighbors for repayment performance. Grameen’s success inspired a host of other organizations to try microlending — and soon the model expanded beyond the provision of small loans to become microfinance, which encompasses a whole range of financial services for the underprivileged. In India, situation was quite contrary as none of the biggies: PSUs’ or large private sector banks came forward, simply because the element of risk being involved. These banks were just trying to meet their yearly quota of about 40% with difficulty, but then there was a change in government’s policy. This paper tries to study the background of the situation, the harsh realities, the boom of MFI market in India, and the setback in Andhra recently. This paper will also try to study the various models’ that are being involved in the sector, and will evaluate the policies employed by government. For true shining India, we need to address the needs of poor and Micro Finance can be such one step.