Microfinance is an anti-poverty tool for rural development: A study

Micro-credit or micro finance is the extension of very small loans (micro loans) to the unemployed persons, to poor entrepreneurs, to households, to farmers and to others living in poverty who are often left out of the formal banking system, because of several reasons: their inability to provide collateral, the high risks in lending to them, the rigid formalities that are a part of the formal lending system and the high costs. As a result, the poor often have to resort to informal moneylenders, who charge high rate of interest and often exploit the situation. Micro finance is a novel approach to ‘banking with the poor’ and this system attempts to combine lower transaction costs and high degree of repayments. The most important cause of rural indebtedness is poverty. The farmer’s income is low and he has no past savings. Whenever there is any crop failure, illness, accident, sudden fall in agriculture price, etc. the Indian farmer borrows year after year but he is not in a position to repay all the debts. As a result, the debt of the farmer goes to increasing. Rural micro credit is essentially helpful for farmers and promoting self-employment in the informal sector of the economy. India’s microfinance experiments are much differ from the more substantial microfinance institutions and programmes of its neighbors countries. Creating self employment opportunities is one way of attacking poverty and solving the problems of unemployment. There are over 24 crore people below the poverty line in our country. The Scheme of Micro-finance has been found as an effective instrument for lifting the poor above the level of poverty by providing them increased self-employment opportunities and making them credit worthy.