Role of Micro Finance in Developing Indian Economy


  • Ms. Pardeep Kaur, Ms. Sunita


Microfinance is a term used to describe modest savings, credit, and insurance services provided to those who are socially and economically disadvantaged. In India, it is proving to be a potent instrument for poverty reduction. This working paper attempts to summarise the current state of microfinance in India from its inception to the present. Poverty is one of the most pressing issues facing the Indian subcontinent, which is home to more than a third of the world's population. Many developed countries consider India, one of the BRIC nations with a population of over 1.2 billion, to be an emerging economy. India's economic expansion has failed to significantly reduce poverty, with 400 million people still living in poverty, more than the whole population of the poorest African countries. With this concern, the Indian government launched a number of poverty reduction schemes, however they have failed to achieve the expected results. There might be a variety of causes, including inability to reach the target population, system flaws, and the development of a robust mechanism, to mention a few. Subsidized credit was tried in several countries, including India, however it only resulted in an increase in nonperforming assets (NPAs). Microfinance has stepped up to fill the need. However, in comparison to the demand and potential, the outreach is insufficient. However, with NABARD's active engagement and the development of SHG groups, there has been some success in this area. A number of non-governmental organisations (NGOs) and microfinance institutions (MFIs) have also entered the market. Some of them have also started in a significant way and have begun generating money by launching initial public offerings (IPOs) (Initial public offers). However, recent events have thrown a renewed spotlight on the issue of regulation in the sector of microfinance. The article examines three elements of microfinance: first, the rise of microfinance in India and other countries; second, the involvement of NABARD and other national banks in the growth of SHGs and Grameen Bank. Third, it discusses the government's involvement in drafting legislation to defend micro-lenders' rights. The report also addresses the need for a regulatory agency to oversee, manage, and advise the various microfinance institutions and non-governmental organisations that engage in the industry. The study addresses the elements that influence the evolution of microfinance and its role in the global scene from both a practical and theoretical standpoint.