Microfinance and Financial Inclusion – Contemporary Challenges for Banks

Abstract

Microfinance India is a national platform that strengthens the microfinance sector through high quality research, intellectual debate and knowledge dissemination. Microfinance is a source of financial services for entrepreneurs and small businesses lacking access to ban king and related services. The two main mechanisms for the delivery of financial services to such clients are: (1) relationship-based banking for individual entrepreneurs and small businesses; and (2) group-based models, where several entrepreneurs come together to apply for loans and other services as a group. In some regions, for example Southern Africa, microfinance is used to describe the supply of financial services to low-income employees, which is closer to the retail finance model prevalent in mainstream banking. In developing economies and particularly in rural areas, many activities that would be classified in the developed world as financial are not monetized: that is, money is not used to carry them out. This is often the case when people need the services money can provide but do not have dispensable funds required for those services, forcing them to revert to other means of acquiring them. Today the MFIs want the government to empower them for mobilising savings. With increasing demand for rural finance, and the inadequacies of formal sources, the MFIs have immense opportunities in the new avatar of micro credit in India. However, in the light of recent experiences, and the need for qualitative growth, we suggest that MFIs should be managed with better scrutiny in terms of finance and technology as well as social responsibility. This is of utmost importance in order to upgrade MFIs from thrift and credit institutions to capacity -building and livelihood-sustaining associations of people. NGOs have played a commendable role in promoting Self Help Groups linking them with banks. Hence, the present study focuses on Microfinance and Financial Inclusion and its Contemporary Challenges for Banks. The study based on Secondary sources of data collection.