Now purpose of economic empowerment of the weaker

Now in India the
majority of publics lives in rural areas and rest on agriculture-connected
activities. However, a rare people own the most of the land and majority of the
poor have no land in their ownership. Since independence various measures taken
by the government have upgraded the condition to some level. But there is a
little scope to improve the welfare of the poor based on land-based activities.
In this situation credit plays a vital role for the disadvantaged. Keeping this
in mind various credit linked poverty alleviation programmes have been taken up
from time to time such as Integrated Rural Development Programme.

            For the purpose of economic
empowerment of the weaker sections commercial banks were nationalized in 1969. Therefore
land development banks and cooperative banks were recognised across the
country. To addition credit provision in the rural areas, Regional Rural Banks
were established in 1975. They have played a significant role in the execution
of credit-linked scheme like Integrated Rural Development Programme. This
subsidy-linked programme unsuccessful to accomplish its objective due to wrong
identification of receivers, leakages, misuse of subsidies and low recoveries.

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            Despite the infrastructure, huge
poverty-linked alleviation programmes and statutory obligations, 64.5 per cent
of the poor were still borrowing from informal sector (2011). There are a
number of restrictions of the formal sector in providing credit to the
poor-cumbersome procedure; insistence on collateral/guarantee, mobilization of
promoter’s contribution, etc. the concept of micro finance was announced for
overcoming the prevalent restriction and providing adequate credit to the poor.
It mobilizes saving and supplements it with loan from the financial

is an option to resolve this problem of poor people. Microfinance is the
provision of a wide range of financial services for example deposits, loans, payment
services, money transfers, and insurance to poor and low-income households and,
their micro enterprises. Microfinance is an approach that has been confirmed to
empower people everywhere in the world to pull themselves out of poverty.


Dr.R.Rajkumar & Dr.Sita Ram Singh
(2010), “Micro Credit and Economic Development”, Regal Publication pp.3-4

Relying on their traditional skills and entrepreneurial
natures, recipients of small loans, other financial services, and support from
local organizations called microfinance institutions (MFIs) to start,
establish, sustain, or enlarge very small, self-supporting businesses. A key to
microfinance is the recycling of loan rupees. As each loan is repaid usually
within six months to a year the money is recycled as another loan, thus
multiplying the value of each rupee in defeating global poverty, and changing
lives and communities.2


1.2.      DEFINITION


perception: Microfinance being referred to as small scale
financial services provided to people, who work in agriculture and allied
sectors; who operate small and micro-enterprises, who provide services, who
work for wages and commission and other individuals and groups at the local
level of developing countries both under rural and urban areas (Robinson
1996).Microfinance can be interpreted in a broader context to contain both
microcredit and micro-savings, even though microcredit and microfinance have
come to be used interchangeably. By implication, the amounts of credit and
savings are small. (Kaladhar 1997).3

“Microfinance can
be defined as any activity that includes the provision of financial services
such as credit, savings, and insurance to low income individuals which fall
just above the nationally defined poverty line, and poor individuals which fall
below that poverty line, with the goal of creating social value”. The creation
of social value includes poverty alleviation and the broader impact of
improving livelihood opportunities through the provision of capital for micro
enterprise, and insurance and savings for risk mitigation and consumption

A huge variety of players
provide microfinance in India, using a range of microfinance distribution systems.
Since the founding of the Grameen Bank in Bangladesh, various actors have endeavoured
to provide access to financial services to the poor in creative ways. Governments
have conducted domestic programs; NGOs have undertaken the activity of raising
donor funds for on-lending, and some banks have partnered with public
organizations or


Kishanjit Basu and Krishan jindal,
“Microfinance Emerging Challenges”, Tata McGraw-Hill Publishing Company
Limited, New Delhi. ISBN 0-07-463539-5, Page no-279.

Made small inroads themselves in providing
such services. This has resulted in a relatively broad definition of
microfinance as any activity that targets poor and low-income individuals for
the facility of financial services. The range of activities started in
microfinance includes group leading, individual leading, the provision of
savings and insurance, capacity building, and agricultural business development
services. Whatever the form of activity however, the main goal that combines
all actors in the provision of microfinance is the creation of social value.
Microfinance is therefore defined as much by form as by committed of the lender
or financial service provider.4


Micro finance can
be well-defined as provision of saving credit and other financial services and
products of very small accounts to the poor (like small and marginal farmers,
landless agricultural workers, seasonal workers and the self-employed in the
informal sector including village artisans, hawker and vendor, fisherman, petty
shop owners, etc.) in rural, semi urban or urban areas for enabling them to
rise their income levels and improve living standards.


“Small scale
financial services for both credits and deposits that are provided to people
who farm or fish or herd; operate small or micro enterprise where goods are
produced, recycled, renovated or traded; deliver services: work for incomes and
commissions; gain income from renting out small amounts of lands, vehicles,
draft animals or equipment and tools; and to other individuals and local groups
in emerging countries in both rural and urban areas”.

                                                                                                – Marguerite
S. Robinson

“Micro finance is a
providing of saving, credit and other financial services and products of very
small quantities to the poor in rural, semi-urban areas for facilitating the
poor to increase their income levels and living standards”.                 

                                                                                 -The NABARD Task Force (1999)

It is important to understand the genesis of micro
finance as it differs from ‘Contemporary financial services’ or ‘commercial
finance’. Firstly micro finance is not driven by sustainability, however, it
may not be mistaken that micro finance programme cannot become sustainable.

4.  G. Rama Krishna (2010), “Microfinance in
India: A tool for Women Empowerment”, Manglam Publications-Delhi-110053, First
Edition, page no-171-172.

   The premise that dominates micro
finance programme is that of providing ‘equitable means and opportunities’ to
poor to take stock of their lives (NIRD, 2005).

            Micro finance can help poor people
realize their potential by raising their income, increase assets, reducing
vulnerability, socially empower its participants (mostly women) and contribute
to broader social and economic development. It also allows poor to improve
their access to education, health services, better nutrition and so on.5

generally refers to a broad set of financial services tailored to fit the needs
of poor individuals”.6

Finance is defined as provision of thrift, credit and other financial services
and products of very small amount to the poor in rural, semi-urban and urban
areas for enabling them to raise their income levels and improve living

finance programmes can help poor household smooth consumption during an adverse
shock. Access to credit may help them to avoid distress sales of assets and
replace productive assets destroyed in natural disasters. They can also provide
capital to create or expand micro enterprises. Thus MF helps households to
diversity their sources of income shocks. The evaluation of MF has taken place
due to concern of developing countries for empowerment of the poor and the
alleviation of poverty. It has evolved as a need based policy and programme to
cater to the so for neglected target group i.e. women, poor, rural, deprived,
etc. in recent years, MF has become one of the most important intervention for
economic empowerment of the poor.7

“Microfinance means the wide range of financial services such as loans,
insurance, savings etc. delivered to the people of low-income groups”.
Microfinance plays a innovative role in any country’s economy. It helps the
poor people to fulfil their basic necessities and protection them from any

Dr.R.Rajkumar & Dr.Sita Ram Singh
(2010), “Micro Credit and Economic Development”, Regal Publication, New
Delhi-110027, page no-97-98.


Dr.R.Rajkumar & Dr.Sita Ram Singh
(2010), “Micro Credit and Economic Development”, Regal Publication, New
Delhi-110027, page no-229-230.


Difference Between Microcredit and Microfinance


                Microcredit has
been defined by the Micro-credit Summit held in 1997 as “programmes that
provide credit for self-employment and other financial and business services
(including savings and technical assistance) to very poor persons”.9

                Micro credit
programmes extend small loans to poor people for self-employment projects that
generate income allowing them to care for themselves and their families. In
most cases, micro credit programmes offer a combination of services and
resources to their clients in addition to credit for self-employment. These
often include savings facilities, training, networking and peer support.

            The scope of micro credit is to
offer small size loans to poor people to start self-employment projects of
income generating activities and allowing them to take care of themselves and
their families. In most cases it offers a combination of services and resources
to their clients in addition to credit for self-employment. It includes initial
savings, training, networking and other allied support. It provide loans for
short term period. In Bangladesh micro credit is extensively used for reaching the
poor. It is proved to be a powerful weapon to fight against poverty. During the
seventies many initiatives were taken in developed countries in Asia, Africa,
and Latin America to expand and popularize the concept of micro-credit. Self-Help
Groups (SHGS) and Revolving Savings and Credit Associations (ROSCAS) are the
outcomes of such effort (Joshi, S.C., 2002). The Grameen Bank set up
established by Prof. Mohd. Yunus of Bangladesh is the pioneer of this popular
model. Here the poor women by getting a loan could able to fight against
poverty and achieve economic freedom (Meenakshi, B.S., 2007).

            Microcredit is the extension of very
small loans (microloans) to the unemployed, to poor entrepreneurs and to others
living in poverty who are not considered bankable. These individuals lack
collateral, stable employment and a supportable credit history and then cannot
meet even the most minimal qualifications to gain access to traditional credit.
Microcredit is a part of microfinance, which is the provision of financial
services to the very poor; separately from loans, it includes savings,
microfinance and other financial inventions.

9.       Kishanjit
Basu and Krishan jindal, “Microfinance Emerging Challenges”, Tata McGraw-Hill
Publishing  Company Limited, New Delhi.
ISBN 0-07-463539-5, Page no-279.

            Microcredit is a financial
innovation which originated in developing countries where fairy it has
successfully enabled extremely impoverished people to engage in self-employment
projects that allow them to generate an income and, in various cases, begin to
build wealth and exit poverty. Due to the success of microcredit, many in the outdated
banking industry have created to realize that these microcredit borrowers
should more appropriately be considered as pre-bankable; hence, microcredit is
increasingly gaining credibility in the typical finance industry and many
traditional large finance organizations are expecting microcredit projects as a
source of upcoming growth. Although almost everybody in larger development organizations
discounted the probability of success of microcredit when it was begun in its
modern incarnation as pilot projects with ACCION and Muhammad Yunus in the
mid-1970s, the United Nations declared 2005 the international year of


10.      Dr.R.Rajkumar
& Dr.Sita Ram Singh (2010), “Micro Credit and Economic Development”, Regal
Publication, New Delhi-110027, page no-30, 127, 193, 194.