MFI Institution

Everything You Must Know About the Microfinance Industry In India

Microfinance has become one of the most important sections of the Indian financial structure. The advent of newer microfinance investments has ensured that even the underprivileged are provided with equal opportunities as the rest of us get. Now, there is a key role that the MFI Institution or Micro Finance Institutions play. We will get into the matter quickly, but before that, it would be wise that we look into the past and presence of the Indian Microfinance sector and how it is showing a promising growth projection over the upcoming years and decades.

MFIs are gaining traction

It is a public knowledge that during the latter half of the year 2018-19, financial firms in the Indian economy had been facing some serious liquidity issues. This particular crisis was fuelled by ALM (Asset-Liability Mismatch). Despite the Indian financial sector experiencing worrisome scenarios, the microfinance sector never seemed to have felt the wrath of the market. In fact, the Indian microfinance sector continued growing and during that particular period, the particular industry showed some robust growth graph. For instance, during the financial year of 2018, the Indian microfinance sector grew by over 40 percent. Such a number showed how strong and reliable microfinance was, and how important this sector was for the Indian economy to boost.

How does the Microfinance industry work?

Unless you’re living outside of Earth, you would know something or the other about Bangladesh’s Muhammad Yunus, who won the prestigious Nobel Peace Prize in 2006 for his contribution to the microfinance sector. His main aim was to make financial aids available to the poor in the form of credit.

The key concept behind this idea was to make credit available for the underprivileged class whom the traditional financial institutions such as banks refused to grant a loan or similar financial support. With such small loan amounts being lent to the women, the motto of Mr. Yunus’ work was to initiate income opportunities for the backward classes of the society.

So, we can safely say that the microfinance industry has an important role to play when it comes to the empowerment of women.

World’s best microfinance sector is in India?

The National Bank for Agriculture and Rural Development (NABARD) has published its report about the microfinance model as operative in India. In that report, they have acknowledged that although the concept of microfinance was first born in Bangladesh, it is quickly gaining traction and popularity in India as well.

In India, the microfinance industry is about 25 years old as compared to Bangladesh’s 50 years old industry, but in terms of the robustness and overall growth, the Indian microfinance sector is currently labeled the best in the world.

This has been made possible mainly because of the strict guidelines implemented by the Reserve Bank of India (RBI), along with the lower interest rates applied in India. In India, the interest rate is as low as 18%, which is way lower than what is the case for the birthplace of microfinance; Bangladesh.

Winding Up

It, therefore, seems that the Indian microfinance sector is up and running and over the next decades. It will contribute towards the empowerment of the backward youth and women, which in turn, would boost India’s growth and economy.

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