Role played by banks through microfinance services in India

Microfinance the innovative credit delivery system changes the life of the poor, especially women, not only by providing financial services such as micro savings and micro insurance, but also by imparting training in entrepreneurial development. Over the past few decades, microfinance institutions and programmes ways of providing credit and savings services to the poor. These include the provision of small loans to poor people, especially in rural areas, at full cost interest rates without collateral security, repayable in frequent instalments.

Micro credit has been defined as programmes that provide credit for self employment and other financial and business services to very poor persons.

Micro finance represents something more than micro credit. It also refers to savings, insurance pawns and remittances, in sum to a much wider range of financial services. Thus micro finance refers to the entire range of financial and non-financial services, including skill up gradation and entrepreneurship development, rendered to the poor for enabling them to overcome poverty.

The microfinance as a tool in poverty reduction and empowerment particularly in rural areas, has gained credence in development dialogue the world over (Joy and Murthy, 2007). It puts credit, savings, insurance and other basic financial services like fund transfer (Robert et al., 2004) within the reach of poor and low income households and their microenterprises. Despite encouraging poverty alleviation programmes that sought creation of self-employment opportunities through bank credit, a very large number of poorest of the poor continued to remain outside from the field of formal banking system. Through microfinance institutions such as credit unions, financial non-governmental organisations (NGOs) and even commercial banks, poor people can obtain small loans.