Microfinance is "a world in which as everyone, especially the poor and socially marginalized people and households have access to a wide range of affordable, high quality financial products and services, including not just credit but also savings, insurance, payment services, and fund transfers."1
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Financial Inclusion
By bringing them into the folds of financial inclusion, Microfinance has ensured that the poor partake in the development of the nation.
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Self-Sufficiency
Innumerable stories illustrate how microfinance has made its customers self-sufficient through entrepreneurial activities, making their lives and that of their families, better.
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Stability
Access to steady and sustainable income as compared to one-time access to capital has helped borrowers by bringing in stability in their lives as against their prior vulnerability to the vagaries of life. Microfinance helped borrowers raise income, build assets and/or cushion themselves against external shocks.
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Women Entrepreneurship
Increase in the household incomes has improved self-esteem of woman, further motivating them, evident in the rise of many rural entrepreneurs.
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Financial Literacy
An understanding of financial matters is important before borrowers are entrusted with credit. Microfinance providers have focussed on financial literacy among borrowers to increase awareness about accessing credit, managing it, and utilising it wisely.
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Digitization
Microfinance has taken technology to the remotest parts of India. Be it mobile phones, or Apps or biometric devices, the rural woman is a happy digital customer, enjoying the ease of ‘connectivity.
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Crisis Support
Behind the increased resilience of the borrower, is the solace provided by a microfinance provider. Time and again, microfinance providers have supported stressed borrowers in times of a calamity or crisis.
Christen, Robert Peck Christen; Rosenberg, Richard; Jayadeva, Veena. Financial institutions with a double-bottom line: Implications for the future of microfinance. CGAP, Occasional Papers series, July 2004, pp. 2–3.
Besides the obvious benefits of bringing a large section of the poor and unserved population of India into the folds of financial inclusion, the intangible benefits of Microfinance are immense.
The world has long been talking of sustainability of businesses, in which Microfinance has been a great contributor. By providing access to dependable credit through easily serviceable loans, income generating activities in rural India are now far more sustainable. Moreover, this sustainability of business has also enabled Microfinance to help the poor manage their poverty. With credit support of a regulated sector as against dependency on local moneylenders, the extreme poor now have a cushion or a so called ‘safety net’. While the Prime Minister urged the nation to become digital, Microfinance can proudly claim to be one of the largest proponents of the movement by introducing newer and advanced digital technologies in rural India, truly contributing to the development of the nation. Focusing largely on women, microfinance has been a game changer rurally, empowering women and promoting entrepreneurial spirit.
An NCAER report analysed the contribution of the microfinance sector to the overall economy in terms of income or ‘Gross Value Added’, a measure of the national economic output and employment. The study points out that the present and potential contribution of microfinance to the macroeconomy is significant, especially considering its operations that focus on meeting the credit needs of the lower income households and smaller enterprises. Further, the promise of microfinance in meeting the credit needs of the poor and assisting them to overcome poverty has been at the core of the policy interest.
Microfinance also complements the efforts of public policies aimed at overall development and poverty reduction. Besides the economic impact of credit, there have also been social or non-economic benefits, one key area is women’s empowerment. As per the study, the contribution of microfinance sector as a whole, including all MFIs and SHGs, is 2.03 per cent of GVA. In employment, the contribution of microfinance sector as a whole, inclusive of direct, indirect backward and forward linkages and including all MFIs and SHGs amounts to 128.46 lakh jobs. The study also estimates that the contribution of the microfinance sector as a whole to the GVA is projected to reach 3.52 per cent of the GVA in 2025-26. For more on the impact of microfinance credit on poverty reduction, micro-enterprises, women’s empowerment, and non-economic benefits, please click.
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