Micro Finance

The poor finds it difficult to access financial services through the formal sector because of the cumbersome procedure of a formal institution. They do not have any collateral to secure a loan, though they have small savings and they resort to the informal sector which includes the money lenders to meet their credit needs.

Microfinance, through Self Help Groups has become an important instrument to meet the credit needs of the poor, especially in the rural areas. Microfinance helps the poor households meet their basic needs of credit. Moreover, they enjoy high credit ratings compared to the bigger users of loans from financial institutions.

The National Sample Survey, 59^th round estimates that nearly 50 per cent of the cultivator households, mostly marginal farmers have virtually no access to credit. The government initiative to help give credit to the poor has made Self Help Group (SHG)- Bank linkage program in India as the largest microfinance program in the World.

The Self Help Groups which form the nucleus of the microfinance program is a close knit group, which ensures high credit ratings, as repayment of loan is very high. However, still there is a systemic in-built bias against small borrowers by formal banking systems who feel burdened with small and frequent transactions from small-time borrowers.

The rural poor are efficient managers of credit and finance. The founder of the Grameen Bank in Bangladesh, Professor Muhammad Yunus has said, "If we can come up with a system which allows everybody access to credit while ensuring excellent repayment- I can give you guarantee that poverty will not last long."