India’s population has never been in the receiving end when it comes to financing. Banks and other financial organisations Initially, banks and many other organizations were able to create services for the general population. However, with illiteracy being a major hindrance in the growth of the country, many people refrained from accessing banking services with the fear of losing their money.
This situation gave birth to what we call ‘micro financing’
What Is It?
Micro finance is the process of providing financial services like loans, credit, savings and so on, on a small scale to people who can’t afford banking services. There are various institutions that provide small and medium term loans to those who want to acquire services for a lower price.
In-fact, the presence of micro finance is so strong in India that many people create informal groups for lending and borrowing and believe that is the only way they will be able to make productive use of their savings.
The Vicious Cycle of Poverty
Poverty is the reason why people can’t afford financial services. People who were unable to gain education in the early stages of life are either not aware about these services or are unable to understand them.
Since they are unable to understand them then they do not invest, which in turn hinders their monetary growth. This cycle and the lack of financial assistance is the reason why India is facing issues of financial inclusion. People who didn’t have sufficient funds to get educated end up being unemployed or involved in unskilled labor. Over 60% of India’s population that lives in the rural areas are involved in occupations like farming, fishing and other agricultural activities. These are occupations that don’t pay much and hence allows a meager amount of money to live life.
Many a times, individuals do not have proper identity proof or a set amount of yearly income. Their occupational; income is more seasonal in nature so there is a lack of stable income. Micro-finance loans were hence made by keeping these facts in mind.
Therefore, NBFC firms and some small organizations provide people with small loans which an individual can easy pay off with their income, these small amounts of loans allows them to enhance their living.
Role of MF in India’s Development
Various micro-financing options have developed in the last decade. Institutions as well as informal associations like self-help groups are providing people, especially those living in the rural sector, with affordable loans at a low interest rate.
Individuals who avail these loans get more resources in their hands, micro-finance provides them with the right amount of money which they can use to start a business, fund their child’s education or just make their lives better. It helps them to have a decent standard of living.
India is developing at a slow yet steady pace, if we want to close the gap between the rural and urban as well as the low and higher income people, then financial inclusion is the need of the hour. Micro-financing options are just one element that can bridge that gap and help the poor sustain in the growing economy.