The Growth of Microfinance in India: A Study of SHG and MFI Bank Linkage Models

The lack of loans from formal institutions leaves the poor with no other option but to borrow money from local money-lenders on huge interest rates. In different countries including India, efforts have been made by their governments to deliver formal credit to rural areas by setting up special agricultural banks/rural banks or directing commercial banks to provide loans to rural borrowers. However, the inability of formal credit institutions to deal with the credit requirements of poor effectively has led to emergence of microfinance as an alternative credit system for the poor. Microfinance is defined as provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and urban areas so as to enable them to raise their income levels and improve their living standard. This programme is becoming popular and emerging as a powerful instrument for poverty alleviation in many countries of Asia, Africa, Europe and America. In this paper an attempt is made to analyse the growth of the two microfinance distribution models, viz. The SHG-Bank Linkage Model and the MFI Model, in India.