A Brief Note on Micro-Finance
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In socio-economic terms, micro-finance is the provision of thrift credit and other financial services and products of very small amounts to those who are marginalised in rural, semi-urban or urban areas.

Micro-finance seeks to enable those from the marginalised section to raise their income levels and improve their living standards thereon.

Generally, micro-finance helps poverty alleviation, financial support to micro-entrepreneurs, and gender development.

Typically, borrowable amounts of Rs 25,000 to Rs 40,000 over time can be considered as micro-credit products.

The term micro-finance is often used interchangeably with the term micro-credit. However, while micro-credit refers to loans in small quantities, the term micro-finance has a broader meaning as it covers other financial services like saving, insurance, investment, among others.

A group is known to play an important role in credit appraisal, monitoring and recovery. Generally, the groups can be of two types:

Self-Help Groups (SHGs): In this case, the group undertakes financial intermediation on behalf of a formal institution. This is the predominant model followed in India.

Grameen Groups: In this case, financial assistance is provided to the individual in a group by a formal institution on the strength of the group’s assurance. This model is being used in the country by certain micro-finance institutions.

The National Bank for Agricultural and Rural Development (NABARD) is the parent agency that pioneered micro-financing in India.

More than 50% of India’s population is dependent on agriculture for its livelihood, while about 68% of this population is rurally based. This provides NABARD and other associated agencies an arena of considerable size for carrying out micro-financing activities. All the micro-financing institutions are advancing loans in an expanding manner to various sections of Indian society.

The government of India has set up Micro-Units Development and Refinance Agency Ltd (MUDRA). This institution provides funding to the non-corporate, non-farm sector income-generating activities of micro and small enterprises whose credit needs are less than Rs 10 lakh.

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