Most of the countries in the world are wither in the category of developing or underdeveloped economy. When compared with the developed countries, developing and underdeveloped countries have more population and less resources. The above fact has given rise to microfinance. This is purely based on the fact that poor can save, borrow or lend and even repay their debts.
These findings have led to other great inventions like hedge funds and liquid-yield options. The fundamental financial services, like savings, credit and insurance provides an opportunity to people to borrow, save, invest and protect themselves against risks. Poor people require basic insurance options, saving services, and realistic remittance systems to manage their assets and generate income. But with little income, they are unable to manage their lives and, moreover, they are not able to borrow money from banks.
Hence, they tend to rely on informal financial institutions, like village moneylenders, pawn-brokers, Rotating Savings and Credit Associations (ROSCAs), Accumulating Savings and Credit Associations (ACSAs), savings collections, supply shops, money guards, etc., which usually charge a high rate of interest on whatever is lent. In India, the apex financial institution which provide microfinance are National Bank for Agriculture and Rural Development (Nabard), Commercial Banks, Small Industries Development Bank of India (SIDBI), Regional Rural Banks, Co-operative Banks, Non-Banking Financial Companies (NBFCs), etc. |
