Career in Microfinance : : Details of Microfinance Career
India since independence has been attempting through various plans and programs to develop an equitable society in which everybody will at least be able to meet the basic requirements of life. The various antipoverty programs lunched for the purpose of providing support to the poor people to cross above the poverty line in the past found did not achieve desired results due to various reasons. But, one of the important reasons identified for which poor people could not rise above the poverty line was the lack or low access to credit from the formal financial institutions. To make formal financial institutions more responsive to the needs of the poor; the government had initiated concerned effort during 1960 – 1990 through various measures like nationalization of private commercial banks, expansion of rural branch networks, extension of subsidized credit, establishment of Regional Rural Banks ( RRBs ) and the establishment of apex institutions such as the National Bank for Agriculture and Rural Development ( NABARD ) and the Small scale Industries Development Board of India ( SIDBI ) to increase the rural outreach and credit volume in priority sector.
By the early 1990s, these measures showed results in terms of impressive rural outreach and credit volumes. However, it was also found that the institutional structure was neither profitable nor suitable to the needs of low income population segments. There was emergence of many civil society initiatives such as the SEWA Bank and the Women’s Welfare Forum (WWF) extending credit to women workers in the unorganized economy on certain common principles such as the reliance on peer pressure as opposed to physical collateral, self – sustainability, and self – help. It was during that period that the “microfinance,” as it is understood today, first emerged on the Indian development scene by the effort of NABARD initiated Self Help Group ( SHG ) – Bank Linkage program, which links informal women’s groups to formal banks.
This concept held great appeal for non – government organizations ( NGOs ) working with the poor, prompting many of them to collaborate with NABARD in the program. This period also witnessed the entry of another set of stakeholders known as Microfinance Institutions ( MFIs), largely of non – profit origins, with existing development programs. Financial intermediation emerged as the new development mantra for engaging with the poor. They were supported in this effort by apex institutions such as SIDBI, Rashtriya Mahila Kosh (RMK) and Friends of Women’s World Banking (FWWB) through extension of on-lending funds. Though initially aided by international donors and soft loans, many, of the NGO – MFIs went on to access commercial loan funds from domestic banks and achieved extensive client outreach. In 2000, the third phase in the development of Indian microfinance began, marked by further changes in policies, operating formats, and stakeholder orientations in the financial services’ space.
In the current decade, India witnessed a surge in its economic growth, a result of the reforms initiated in the early 1990s. Amidst the general economic euphoria, a growing emphasis emerged on “inclusive growth” and “financial inclusion.” Microfinance and rural markets are seen as key drivers to meet this objective and informal actors including NGO – MFIs and SHGs have gained greater legitimacy.
This period also saw many NGO – MFIs transform into regulated legal formats such as Non – Banking Finance Companies (NBFCs). Commercial banks such as ICICI Bank adopted innovative ways of partnering with NGO – MFIs and other rural organizations to extend their reach into rural markets.
MFIs have emerged as strategic partners to individuals and entities interested in reaching out to India’s low income client segments. Consumer finance, primarily driven by auto finance, housing finance, and consumer durable finance, emerged as high growth area within the financial system with many players competing for market share. Now, there is increased recognition of MFIs’ contribution in credit delivery to poor people in rural areas although their area of operation is not exclusively confined to rural area.