Microfinance: Challenges and Hope in Future

To provide financial access to very poor people and to meet the need for small amount of loans without collateral security, the concept of Microfinance started first in Bangladesh in 1972.Later on it developed in India in the form of Self Help groups in which members themselves were responsible for borrowing and repayment of loans out of common pooled savings. The first breakthrough emerged from policy support to enable informal self help groups of 15-20 members (mainly women) to transact with commercial banks. At a time when many questioned the need for specialized microfinance institutions (MFIs) in India, the Small Industries Development Bank of India recognized the opportunity and started implementation of an ambitious national programme. Providing loan and capacity building support to MFIs, this programme supported 70 MFIs and has disbursed US$46 million. The 2005 national budget has further strengthened this policy perspective and the Finance Minister Mr. P. Chidambaram announced "Government intends to promote MFIs in a big way”. Many Micro Finance Institutions like SA-DHAN, CARE CASHE, SKS microfinance started in India for the welfare of needy people. Microfinance with an aim of providing financial support to needy people proved to be a “Macro–fiasco” in India specially in Andhra Pradesh. The MFIs themselves have overplayed their hand. Compared to neighboring Bangladesh, microfinance as a social business is quite new in India and less deeply ischolar_mained in traditional anti-poverty work than it is in the promotion of microfinance to profit-seeking investors (culminating in the IPO by SKS, the mega-MFI). The new MFIs have created the appearance of being far more concerned about doing well financially than in doing good for clients, community and nation. On one hand, the Indian crisis could encourage other governments with socialist leanings (like Bolivia and Ecuador) to lean harder on MFIs. The sensationalism or partial ignorance of the global and local press could paint all microfinance with the same negative brush and call into question the whole value of microfinance, maybe even make microfinance out to be a “bad guy” for the poor. This paper presents an overview of the how microfinance institutions started in India and what are various ways ahead in which Micro Finance Institutions can perform in better way.