The term microfinance has gained greater significance among the
Non-Governmental Organization (NGOs), development professionals,
Non-Banking Financial Companies (NBFCs), banks, cooperatives, policy
makers and other stakeholders, who represent the sociopolitical and
economic environment. In fact, the microfinance magic has transformed the so-called
non-bankable (poor) people of yesteryear into the primary target segment of
the mainstream financial institutions, which had so far denied access to the
bottom of the income pyramid. They were denied access to credit because they
lack collaterals, besides having meager income streams.
For several years, the policy makers had recommended subsidized
credit schemes for the poor, assuming that the poor cannot afford to service the
loans at normal rate of interest—the interest rate at which loans are lent to
the affordable segment. The subsidized credit schemes did not help the
government in alleviating poverty. This realization led to the identification of the real
issue, that is, access to credit, and not to cost of credit, helps in bringing down
the number of people living Below Poverty Line (BPL).
Inspired by the success stories of the Grameen Bank of
Bangladesh, Bancosol—Bank of South of Bolivia, and Bank Rakyat Indonesia (BRI), many
NGOs, development professionals and banks had jumped into the microfinance race
with the objective of achieving the double bottom line (i.e., economic and
social results). The initiative taken by the National Bank for Agriculture and
Rural Development (NABARD) in the form of a pilot study, by lending Rs. 1 mn to
Myrada, a self-help organization, in the year 1987 for the formation of an alternative
model of credit provision for the poor, led to the emergence of the Self-Help
Groups (SHGs) as the most cost-effective model in microfinance. |
