Micro-finance in India: Strategies to overcome operational issues and challenges

Since Independence Indian Government has taken different steps for removing poverty. However, despite of many efforts, still almost one-third of total population in India is below the poverty line. It has been also observed that the majority of the poor lives in rural areas. In spite of this scenario, proper employment has not been generated in the labor market of India. Looking at this, Financial Inclusion is most challenging regarding economically weaker sections of the society. Microfinance refers to the extension of small loans to the poor for self employment and sustenance. Microfinance includes a broad range of services like credit, savings, payment, Insurance, remittance services, transfer services, and others. So Micro-finance is considered to be revolutionary because it aims at servicing the poor who were unfit to get financial services before. However, its growth is obstructed by various regulatory and operational hurdles are threatening the smooth functioning of Microfinance Institutions (MFIs). The main obstructs faced by MFIs (including banks) in financing the poor were the high transaction cost and low profitability while reaching out to the needy in terms of small credit at frequent intervals. An attempt is made to understand the operational difficulties faced by MFIs in providing microfinance as well as to recommend the strategies that can be taken on the indicated challenges and the effective implementation of microfinance delivery modes.