Page 1 of 8
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 03
March 2019
Available online: https://ejbss.org/ P a g e | 1197
Reinvention of Financial Inclusion through Micro Finance
Institutions (MFIS)
ANU DAHIYA
Email id: anudahiya19@gmail.com
Research scholar, UIAMS, PANJAB UNIVERSITY
ABSTRACT
Financial Inclusion via micro finance institutions (MFIs) is just one aspect of banking the
unbanked segments of society. But it is very important, as finance is pivotal for social as well as
economic development of the poor populace. The main aim of financial inclusion is to make the
financial services accessible to lower income group and that is where role of micro finance
comes in. For the achievement of Financial Inclusion, the most important goal is to make the
banking facilities available to all the unbanked areas and each household. Thus, this paper will
discuss various ways through which Micro Finance Institutions plays a very important role in
Financial Inclusion such as Micro credit is provided to Self Help Groups (SHGs) consisting men
and women in remote areas as they are the target group of this facility and various organizations
that are providing micro credit along with which they also conduct training for first time
customers and impart them financial literacy and explain about the various micro finance
products available to them. .
KEYWORDS Financial Inclusion, Microfinance, Financial Literacy
INTRODUCTION
Financial Inclusion (FI) is generally defined in terms of financial exclusion. In India, majority of
the population belongs to lower income group. But the facilities which can be availed be it
financial services or any other services generally targets the few rich people. Thereby the low- income group gets neglected. This is the kind of exclusion which needs to be highlighted by
favoring the concept of Financial Inclusion. The great tragedy lies in the fact that sometimes
Page 2 of 8
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 03
March 2019
Available online: https://ejbss.org/ P a g e | 1198
even though there are certain financial services, specially designed to meet the needs of these
low-income group people, these people remain unaware about the due to illiteracy or other
reasons. Thus, lack of awareness also leads to the financial exclusion.
Microfinance is the provision of financial services to poor and low income households who don’t
have access to financial institutions. Microfinance companies can play a vital role in providing
financial services in remote areas. "There is no banking facility present in remote areas and
therefore, these companies can play a major role in providing financial services in these areas
and to the last man in the society," said Reserve Bank of India (RBI) Regional Manager Murali
Ramkrishna These companies fulfill financial needs of people of the lowest strata by providing
small loans without any guarantees, but despite that, their loan recovery rate is 98%, which is
highly surprising, he said while addressing a session on 'Micro Finance: Financial Inclusion
Agenda' organized by the Microfinance Institution Network (MFIN).
MFIN has also launched a multi-lingual helpline number for the benefit of its customers. The
body is an umbrella organization of 55 non-banking finance companies (NBFC) and
microfinance companies. It has disbursed Rs 45,000 crore as loans to more than 4.5 crore
customers in the country. NBFC-MFIs play an important role in the government’s agenda of
Financial Inclusions as they cater to the unbanked sections of Indian society under the regulatory
oversight of the Reserve Bank of India (RBI). The microfinance industry has witnessed
impressive growth over the past five years, growing at a Compound Annual Growth Rate
(CAGR) of 45 per cent.
OBJECTIVES OF THE PAPER
1. To describe the role of Microfinance in Financial Inclusion with special reference to
Financial Literacy and availability of Microfinance products.
2. To discuss the models and important players of Microfinance institutions prevalent in
India
Page 3 of 8
European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
Volume 07 Issue 03
March 2019
Available online: https://ejbss.org/ P a g e | 1199
3. To highlight the government’s initiative towards financial inclusion through the
microfinance sector.
DATA COLLECTION
The secondary data has been used in this paper and information has been taken from the internet
via, newspapers and research papers.
MICRO FINANCE AS A TOOL FOR FINANCIAL INCLUSION
In India, microfinance has lead to a tremendous growth in last few years and financial services as
a powerful instrument have reduced poverty that enables them in increasing income, building
assets and reducing the economic stress. The aim of microfinance is to provide broad range of
financial services like deposits, payment services, loans, money transfer at one click and
insurance facilities to poor and low- income people. Microfinance acts as an umbrella which
provides the provisions of banking services to poor part of population through financial
institutions (micro finance institutions) that are not served by mainstream financial institutions.
MICROFINANCE MODELS IN INDIA
There are various numbers of institutions in India that offer microfinance exclusively. A
particular model or a blend of different models is used by each institution in order to provide
microfinance to applicant. Main models of Microfinance prevalent in India are:
1. SELF-HELP GROUP MODEL
In this model SHGs act as a bridge between bankers and the grass root clients. Banks transfer
funds to micro finance bodies that are responsible for disbursal and collection. The
intermediation cost could be around 6% of the loan amount. The risk completely lies with the
banks - the advances to the SHGs would be reflected in the portfolios of the banks. Banks do not
