ABSTRACT

After India's independence in 1947, the Indian economy was

identified by exclusive regulation, recession, public ownership,
rampant corruption, hyperinflation, and protectionism. The
Microfinance revolution in India started in early 1980 with the
effort of the Yezdi Hirji Malegam committee by forming informal
self-help groups(SHGs) to provide access to the needy borrowers
and the small entrepreneurs who have great vision and
aspiration but have limited capital. Before the economic reforms,
it rose at a slow pace but after economic reforms i,e globalization,
liberalization, and privatization had supported in the
development and growth of the microfinance sectors in India at
wider extent. This study reveals a better understanding of the
enigmatic microfinance sector after tracing its information from
various sources. The present formal financial system is based on
capitalism and quality-oriented asset. Microfinance is considered
as a boon for the upliftment of the weaker sections of society and
is an effective tool for generating substantial revenue.

1
INTRODUCTION
The United Nations (UN) is an international organization of all the
countries around the world who declared the year 2005 as “The
UN Year of Microcredit”. In 2006, Grameen Bank and its founder
Prof Mohd Yunus in Bangladesh was awarded the Nobel Peace
Prize “for their efforts to create economic and social development
from the below”. Prof Mohd Yunus believes that microfinance is a
tool of development which is used to get rid of poverty.
Microfinance is the provision of financial services to the
underprivileged clients or solidarity lending groups including
consumers and self-employers, who lack convenient access
to banking and its related services without having the
support of collateral securities.
Here, Solidarity lending means a lending practice where small
groups borrow collectively, and a group of members encourage
one another to repay. It is an important building block of
microfinance. In other words, these groups are distinctive
banking distribution channels and are used primarily to deliver
microcredit to the poor people. They serve as an intermediary
between the financial institution and the weaker borrowers and
help financial institutions by lowering the costs related to
assessing, collecting, and managing loans, and can eliminate the
need for collateral. They make an informal interaction with the
poor people.
Microfinance which serves as an umbrella encompasses the
provision of banking services by microfinance institutions, which
plays a significant role in the alleviation of poverty especially in
rural and poor sectors of the country. This is a tool that deeply
understands the grievances of the weaker section and assists
them by providing collateral-free loans with enough relaxation
period of loan repayment. It also renders other banking facilities
that were ignored by the formal financial service providers.
Microfinance is a boon for the weaker section of the society. It
pays special attention to the poor and miserable women so that
they can earn a good living.

2
India is a developing country, the population of both the lower
and middle-income groups are relatively more than the high-
income groups. The poor are struggling even for necessities like
food, clothes, and shelter. Microfinance has come up with an
innovative idea of providing financial services that are trying to
enable the economically weaker people to leverage their initiative
and thus boasting the process of generating incomes, assets, and
improvement in various socio-economics aspects. The reason for
the emergence of microfinance is that the esteemed financial
institutions, scheduled banks, etc avoid catering to the needs of
low-income groups and miserable women-headed households.
They only provide loans or other financial services to those who
have good credit-worthiness and the support of collateral
security. They prefer doing transactions with large loans in small
numbers to reduce administrative expenses.
Keeping in mind the credit control policy norms prescribed by
the RBI or the income tax provision under Income-tax Act 1961,
bankers are afraid of bad debts as well as high operating cost
while providing loans to the low-income groups, as they believe
that these people will not be able to repay installments and
interests on the due date. Though the point of rejecting the loans to
the priority is logical, the poor have loan requirements too, which is
not a very huge sum. Therefore, poor people depend on
moneylenders who belong to the unorganized sectors. They pay
huge interest to them. The fundamental problem is not an
ineffective team of credit but a lack of access credit (Kim 1995).
The government is just a supporter, not a direct financial service
provider. Microfinance emerged as a solution to the lack of
capital for those living in poverty in developing economies, yet it
has spread to developed economies where the entrepreneurs also
find microloans difficult to secure [ CITATION Fre00 \l 16393 ].
Banks prefer to provide loans to high-income groups because
they pay the principal and interest amount easily and timely, but
this is not possible always, as many high-income groups are
unable to repay the loan and this leads to the problem of Non-
Performing Asset (NPA) which badly affects the financial sector
and economy of the country. Gross domestic product is rising but

3
at a very slow speed compared to the densely populated country
i.e. India.
Microfinance plays a significant role in the mobilization of ideal
small savings to those borrowers who want to operate and
expand their existing business or want to start a new venture in
micro, small, medium enterprises. It provides self-employment as
well as lending amenities to the weaker sectors and is more
focused on women to be employed in some economic activities. It
has opened many fields in employment for priority sectors like
sericulture, animal husbandry, beehive, poultry farming,
agrarian sectors, mushroom farming, dairy business, stitching
centres, weaving sectors, cottage industry, handicraft, export
housing, handloom work, micro small medium enterprises,
growth of gig economy and many other commercial activities.
Microfinance has been a panacea for poverty reduction in India
and provides an efficient and effective financial system
throughout the country’s economy. It helps in reducing the
income discrimination problem within the country and creating
more job opportunities. Moreover, effective financial tools help in
increasing economic activities in a country and thus add value to
economic growth. Microfinance consists of a wide range of
facilities for the economically weaker section of the society such
as insurance and saving microcredit (Chakravarty & Shahriar,
2015). It provides small loans to those low-income groups who
are rejected from a facility of the formal loan [ CITATION Mor99 \l 16393 ].
Microfinance has a wide coverage of financial products and
services like livestock insurance, life insurance, credit purchase,
to assist the poor people in expanding existing or establishing
business enterprises, saving products, on-life insurance
products, money transfer, advisory services related to finance,
micro leasing, payment services, remittance products, insurance
products. The purpose is to provide financial products or services
to the poor people to increase their income and improve their
standard of living. It has three characteristics to be enlisted as
successful i.e. Impact, outreach, sustainability [ CITATION Hol97 \l 16393 ].

The main features of microfinance are as follows:

4
 1. Microfinance plays a significant role in developing and
balancing the parity of the economy in rural and urban
sectors;
2. It provides micro-credit loans free from collateral security to
the weaker sector of the society at a nominal interest rate;
3. It is a short duration loan with a frequency in repayment of
the loan;
4. It is non-profit-oriented, but service or welfare-oriented;
5. It creates opportunities for self-employment and helps the
weaker sectors to generate income;
6. It develops the spirit of entrepreneur’s courage among the
priority sectors;
7. It is an effective tool of development used for alleviation of
poverty and helps in contributing greatly to the country's
economic growth;
8. It provides a single-window of multi-function facilities at
less operating costs;
9. The two main techniques for the delivery of financial
services to the clients (belonging to priority sectors):
(a) Relationship-based banking for small businesses and
individual entrepreneurs;
(b) Group-based models, where a large number of
entrepreneurs of common interests come together to
apply for the same type of loans and other services.

INSTITUTIONAL FRAMEWORK FOR MICRO CREDIT

5
In India, there are two channels through which microcredit is
provided to the borrower. The first is the “Bank-Self-Help Group
(SHG) Linkage Programme” by which the National Bank for
Agriculture and Rural Development (NABARD) and commercial
banks promote the formation of SHGs and the second one is the
MFI (Microfinance Institutions) model. NABARD which is
considered as the ‘Micro Credit Innovations Department’ has
continued its role as the facilitator and mentor of microfinance
initiatives in the country.
Self-Help Group Model:
The Self-Help Group methodology was developed in Karnataka in
1992. It serves as a link between the informal groups of people to
the mainstream banking system. According to NABARD ‘s report
of FY (2016-2017), more than 100 Scheduled Banks, 349
DCCBBs, 27 State Rural Livelihood Missions program and over
5000 NGOs are engaged in promoting Self Help Groups. It
considers a holistic development microfinance model. The criteria
would broadly be adopted by NABARD for selecting SHGs:
(i) Membership of the group could be between 10 to 20
persons;
(ii) The group should be in existence for at least six months;
(iii) The group actively promotes saving habit;
(iv) Groups could be registered or unregistered.
SHGs-Bank Linkage:
The NABARD launched the pilot project i.e. SHG-Bank Linkage
Programme in February 1992 to promote rural credit operations
by commercial banks to SHGs (micro-entrepreneur, landless
people, small artisans, peasants, women, etc.). The poor people
were encouraged to come together to save a small amount
regularly and extend microloan among them (Mukundan .N &
Saundari Hiliaria. M, 2008). It helped in minimizing the bank’s
transaction cost. The central objective of the SHGs-Bank linkage
program is to remove the dependence of rural women on
unreliable sources/moneylenders who charge an exorbitant
interest rate on loans.
MICROFINANCE MODEL:
6
Microfinance institutions(MFIs) are those which provide thrift,
credit and other financial services and products of a very small
amount mainly to the villagers, micro-entrepreneurs, improvised
women and poor families for helping them to generate their
income and improve their standard of living. It is like a small
bank with the same challenges, liabilities, and a need for capital
for incurring recurring expenses and for expansion of small
ventures, along with the social responsibility to serve
economically marginalized populations. MFIs can be classified
into the following three categories, based on the legal framework.
According to the sources “Adapted from the Report of the task
force on Supportive Policy and Regulatory Framework
(NABARD 2012)” they have emerged into three broad categories:

S.I.NO. Types of MFIs Number Legal

Registration
Profit motives 1.Non -Banking 45 Indian
MFIs Financial Companies Act,
Companies Reserve Bank of
(NBFCs) India Act 1934

Non-Profit MFIs 1.NGOs, 400-500 Society

2.Public Trusts Registration Act,
Registered, Indian Trust Act
3.Non Profit 20 Indian
Companies Companies Act
Mutual Benefits 1.Mutual Benefit 200-250 Mutually Aided
MFIs MFI-Mutually Co-operative
Aided Societies Act
Cooperative Enacted by State
Societies(MACS) Governments
,
2.State Credit
Cooperatives,
3.National Credit
Cooperatives.

7
 MICROFINANCE

FORMAL INFORMAL
SECTORS SECTORS

MONEY LENDERS
SHROFFS
LAND OWNERS
SELF-HELP GROUP MICROFINANCE
CONVENTIONAL
BANK LINKAGE INSTITUTIONS
WEAKER SECTION
C
LENDING BY MODEL (MFIs)
BANKS
MICROFINANCE
SERVICE
PROVIDERS
(i) COOPERATIVE BANKING
INSTITUTIONS; RURAL
URBAN; PROMINENT SEWA
BANKS
(ii)REGIONAL RURAL BANKS NABARD Apex MF NGOs APEX
SHG
(iii)COMMERCIAL BANKS Service FEDERATIONS MFIs
SIDBI LEGAL FORMS
PRIORITY SECTOR LENDING Provider
- NOT FOR PROFIT MIFs
BANKS
- MUTUAL BENEFIT MFIs
MULTILATERAL, BILATERAL, - FOR- PROFIT MFIs
NATIONAL AND INTERNATIONAL
FUNDING AGENCIES CREDIT-LENDING MODELS
- INDIVIDUALS
- SELF-HELP GROUPS
- INDIVIDUALS ORGANISED IN
JOINT LIABILITY GROUPS
- SHG FEDERATIONS

MODAL I MODAL II MODEL III

NABARD-BANK NABARD- BANK NABARD – BANK
SHG (WITHOUT SHG (WITH NGO) NGO- SHG (WITH
NGO AS A NGO AS
INTERVENTION) FACILITATING FINANCIAL
AGENCY INTERMEDIARY)

SOURCE: INDIAN FINANCIAL SYSTEM[ CITATION PAT19 \l 16393 ]

89
PUBLISHER: PEARSON
REVIEW OF LITERATURE
MICROFINANCE INSTITUTIONS (DEVELOPMENT AND
REGULATION) BILL
The structure of microfinance in India has gradually evolved from
micro saving to microcredit, and microcredit to micro-enterprises,
and micro-enterprises to insurance, micro remittance, and micro
pension, thus providing social, economic, and cultural
empowerment to the poor sectors in India. Currently, self-help
groups (SHGs) and other small entrepreneurs, are financed
directly through microfinance institutions, non-banking finance
institutions, or non-profit trusts and cooperatives. The first draft
of the microfinance bill released during March 2007 does not
contain any provision for women empowerment, even though
they are considering it as a major participant in microfinance in
India.
Initially According to the report of 2009-2010, drafted by the
National Bank for Agriculture and Regional Development
(NABARD) reveals the status of microfinance of India that 76.37
percent of the total SHGs savings linked with banks and 72.57
percent of total savings amount of SHGs with banks as on 31
March 2010 are women exclusive. According to a statistical
report, approx. 20000 crore microfinance sectors in India are in
urgent need of central legislation that will remove all difficulties
and promote its efficiency and effectiveness.
Keeping this view in mind, the Ministry of Finance with the
support of the Government of India drafted another Micro
Finance Institutions (Development and Regulation) Draft Bill
2011 in the parliament and was released on June 20, 2011. This
bill is an important step in defining the structure for
microfinance services and many helpful measures for the
protection of the clients (weaker sectors) and gives direction to
the microfinance industry to perform the roles with efficiency and
effectiveness. The most important point to redraft this bill is to
include the issue of women empowerment to develop the
microfinance sector in a social sense justifiable rather than in
just the economic sense. The purpose of this bill is to provide
financial accessibility to the rural, semi-urban, and urban poor
9
sectors of the society through the promotion, development,
regulation, and growth of microfinance institutions.
This bill helps in understanding the meaning of relevant terms
such as microfinance services, microfinance institutions, thrift,
microfinance Development Council, State Advisory Council for
microfinance. Section 2(g) under the provision of the bill defined
‘a microfinance services’ involving small amounts provided to
individuals or groups of individuals. It includes a collection of
thrift, the provision of microcredit, pension the remittance of
funds or insurance services, and any other specified services.
Under Section 2(f) of the said bill, a microfinance institution
means an entity that provides financial services but does not
include a banking company. National housing banks, cooperative
banks, State Bank of India, EXIM Bank, National Bank for
Agriculture and Regional Development(NABARD), a Regional
Rural Bank, Small industries bank, a Subsidiary bank, a
cooperative society engaged in the agricultural sector or
industrial sector or sale or purchase of any goods.
According to Section 3 of the said bill, the microfinance
development council shall be constituted by the central
government, which will provide advisory support to the central
government on the formulation of policies, schemes, and other
measures for the development and growth of microfinance
institution or sectors. It assists the Central government in
matters like establishing bureaus of credit information,
technologies and innovations, working of grievance redressed
system, and promotion and development of financial inclusions of
clients(poor) availing finance services.
As per the provision of the said bill, the State Advisory Council
defined in Section 8 prescribed that the central government has
the power to establish this council having jurisdiction in one or
more states. This council provides advice to the government on
the progress achieved in the implementation of the policies
undertaking for the development and promotion of microfinance
in the state. Its advice on the various matters are as follows:
a) Lending activities which lead to the problems of overburden
debts and large scale defaults;

10
 b) Fair and being reasonable for recovery practices;
c) Working of grievances redressed mechanism;
d) The overall annual assessment of the impact of measures
for financial inclusion and literacy awareness;
e) Any other matter prescribed by the government.
MICROFINANCE MODEL:
Microfinance institutions(MFIs) are those which provide thrift,
credit and other financial services and products of a very small
amount mainly to the villagers, micro-entrepreneurs, improvised
women and poor families for helping them to generate their
income and improve their standard of living. It is like a small
bank with the same challenges, liabilities, and a need for capital
for incurring recurring expenses and for expansion of small
ventures, along with the social responsibility to serve
economically marginalized populations. MFIs can be classified
into the following three categories, based on the legal framework.
According to the sources “Adapted from the Report of the task
force on Supportive Policy and Regulatory Framework
(NABARD 2012)” they have emerged into three broad categories:

S.I.NO. Types of MFIs Number Legal

Registration
Profit motives 1.Non -Banking 45 Indian
MFIs Financial Companies Act,
Companies Reserve Bank of
(NBFCs) India Act 1934

Non-Profit MFIs 1.NGOs, 400-500 Society

2.Public Trusts Registration Act,
Registered, Indian Trust Act
3.Non Profit 20 Indian
Companies Companies Act
Mutual Benefits 1.Mutual Benefit 200-250 Mutually Aided
MFIs MFI-Mutually Co-operative
Aided Societies Act
Cooperative Enacted by State
Societies(MACS) Governments
,

11
 2.State Credit
Cooperatives,
3.National Credit
Cooperatives.

MICROFINANCE

FORMAL INFORMAL
SECTORS SECTORS

MONEY LENDERS
SHROFFS
LAND OWNERS
SELF-HELP GROUP MICROFINANCE
CONVENTIONAL
BANK LINKAGE INSTITUTIONS
WEAKER SECTION
C
LENDING BY MODEL (MFIs)
BANKS
MICROFINANCE
SERVICE
PROVIDERS
(i) COOPERATIVE BANKING
INSTITUTIONS; RURAL
URBAN; PROMINENT SEWA
BANKS
(ii)REGIONAL RURAL BANKS NABARD Apex MF NGOs APEX
SHG
(iii)COMMERCIAL BANKS Service FEDERATIONS MFIs
SIDBI LEGAL FORMS
PRIORITY SECTOR LENDING Provider
- NOT FOR PROFIT MIFs
BANKS
- MUTUAL BENEFIT MFIs
MULTILATERAL, BILATERAL, - FOR- PROFIT MFIs
NATIONAL AND INTERNATIONAL
FUNDING AGENCIES CREDIT-LENDING MODELS
- INDIVIDUALS
- SELF-HELP GROUPS
- INDIVIDUALS ORGANISED IN
JOINT LIABILITY GROUPS
- SHG FEDERATIONS

12
 MODAL I MODAL II MODEL III
NABARD-BANK NABARD- BANK NABARD – BANK
SHG (WITHOUT SHG (WITH NGO) NGO- SHG (WITH
NGO AS A NGO AS
INTERVENTION) FACILITATING FINANCIAL
AGENCY INTERMEDIARY)

REVIEW OF LITERATURE
SOURCE: INDIAN FINANCIAL SYSTEM[ CITATION PAT19 \l 16393 ]
9
MICROFINANCE INSTITUTIONS (DEVELOPMENT
PUBLISHER: PEARSON AND
REGULATION) BILL
The structure of microfinance in India has gradually evolved from
micro saving to microcredit, and microcredit to micro-enterprises,
and micro-enterprises to insurance, micro remittance, and micro
pension, thus providing social, economic, and cultural
empowerment to the poor sectors in India. Currently, self-help
groups (SHGs) and other small entrepreneurs, are financed
directly through microfinance institutions, non-banking finance
institutions, or non-profit trusts and cooperatives. The first draft
of the microfinance bill released during March 2007 does not
contain any provision for women empowerment, even though
they are considering it as a major participant in microfinance in
India.
Initially According to the report of 2009-2010, drafted by the
National Bank for Agriculture and Regional Development
(NABARD) reveals the status of microfinance of India that 76.37
percent of the total SHGs savings linked with banks and 72.57
percent of total savings amount of SHGs with banks as on 31
March 2010 are women exclusive. According to a statistical
report, approx. 20000 crore microfinance sectors in India are in
urgent need of central legislation that will remove all difficulties
and promote its efficiency and effectiveness.
Keeping this view in mind, the Ministry of Finance with the
support of the Government of India drafted another Micro
Finance Institutions (Development and Regulation) Draft Bill
2011 in the parliament and was released on June 20, 2011. This
bill is an important step in defining the structure for

13
microfinance services and many helpful measures for the
protection of the clients (weaker sectors) and gives direction to
the microfinance industry to perform the roles with efficiency and
effectiveness. The most important point to redraft this bill is to
include the issue of women empowerment to develop the
microfinance sector in a social sense justifiable rather than in
just the economic sense. The purpose of this bill is to provide
financial accessibility to the rural, semi-urban, and urban poor
sectors of the society through the promotion, development,
regulation, and growth of microfinance institutions.
This bill helps in understanding the meaning of relevant terms
such as microfinance services, microfinance institutions, thrift,
microfinance Development Council, State Advisory Council for
microfinance. Section 2(g) under the provision of the bill defined
‘a microfinance services’ involving small amounts provided to
individuals or groups of individuals. It includes a collection of
thrift, the provision of microcredit, pension the remittance of
funds or insurance services, and any other specified services.
Under Section 2(f) of the said bill, a microfinance institution
means an entity that provides financial services but does not
include a banking company. National housing banks, cooperative
banks, State Bank of India, EXIM Bank, National Bank for
Agriculture and Regional Development(NABARD), a Regional
Rural Bank, Small industries bank, a Subsidiary bank, a
cooperative society engaged in the agricultural sector or
industrial sector or sale or purchase of any goods.
According to Section 3 of the said bill, the microfinance
development council shall be constituted by the central
government, which will provide advisory support to the central
government on the formulation of policies, schemes, and other
measures for the development and growth of microfinance
institution or sectors. It assists the Central government in
matters like establishing bureaus of credit information,
technologies and innovations, working of grievance redressed
system, and promotion and development of financial inclusions of
clients(poor) availing finance services.

14
As per the provision of the said bill, the State Advisory Council
defined in Section 8 prescribed that the central government has
the power to establish this council having jurisdiction in one or
more states. This council provides advice to the government on
the progress achieved in the implementation of the policies
undertaking for the development and promotion of microfinance
in the state. Its advice on the various matters are as follows:
a) Lending activities which lead to the problems of overburden
debts and large scale defaults;
b) Fair and being reasonable for recovery practices;
c) Working of grievances redressed mechanism;
d) The overall annual assessment of the impact of measures
for financial inclusion and literacy awareness;
e) Any other matter prescribed by the government.
NABARD All India Rural Financial Inclusion Survey (2016-2017)
NABARD introduced a comprehensive survey titled ‘NABARD ALL
INDIA FINANCIAL INCLUSION SURVEY’ (NAFIS) in 2016-2017.
This survey assumes the significance of financial inclusion on the
livelihood of rural sectors both in qualitative and quantitative
terms. Besides this, the survey has covered many economic
indicators such as debt, savings, expenditure, income and
investment, composition and paradigms of consumptions,
parameters like financial literacy/ awareness, borrowing
behaviour, Kisan Credit Card(KCC), distress events (such as crop
failure, death of earning people) insurance facilities coverage for
crop insurance life and accident insurance, pension, etc.
NABARD had constituted an advisory committee for guidance
and directions. NAFIS (NABARD All India Rural Financial
Inclusion Survey) has covered a sample of 1.88 lakh persons
from 40327 agricultural & non- agricultural rural households
across 29 states of the count.
Chakravarty Sugato & Shahriar Zafar Abu 2010 emphasized on
bank-borrower relationships in the application and approval
stages of microcredit. The primary data has been compiled from
the field of 34 randomly selected villages in Bangladesh. The
statistical tool which is used in the research is regression
analysis. This study focuses on informal communication between

15
the lender and the borrower which is collectively defined as a
relationship. This study serves as evidence that is regarding the
potential borrowers who have maintained a long membership
with the microcredit provider.
Arifujjaman Mohammed, & Anisur Rahaman Mohammad 2007
investigates the impact of microfinance on the poor people of the
society with the main focus on Bangladesh. The objectives of this
study are to show microfinance works, by using group lending
methods for alleviation of poverty and its effects on the standard
of living (includes incomes, saving, and consumption) of the poor
people in Bangladesh. Microfinance plays a significant role to
improve health, education, sanitation, legal rights which are
relevant for the concerns of the poor. This study provides
opportunities for self-employment. Their main focus is on women
to make them self-reliant, self-confident.
Ledgerwood Joanna 2000 identifies the following objectives
provided by microfinance institutions in developing countries. It
includes :
1.Eradication of extreme poverty and hunger;
2.Promotion of gender equality and women empowerment;
3.Achievement of universal primary education;
4. Improvement in maternal health;
5. Creation of employment opportunities;
6. Building Assets;
7. Stabilization of consumption;
8. Encouragement of new business formation and developing
spirit of entrepreneurship;
9.With longer-term vision and aspiration, they develop a strategy
to build global financial systems that meet the needs of the
poorest people;
10.Protection against uncertain risk.
In this research, they had concluded after considering various
case studies that the above objectives can be achieved through (i)

16
microcredit; (ii) micro saving; (iii) microinsurance; (iv) money
transfer for the poor.
Besides this, there are many famous case studies on
microfinance which indicate that the innovation of microfinance
plays a significant role in the upliftment of weaker sections and
great efforts in the prosperity of the country’s economy . Such
case studies are the Ethan Wagner case study, Anna Purna
Mahila Mandal by Medha Purao, Grameen Bank by Prof. Mohd
Yunus, and many more.

OBJECTIVES:
The objectives of the study are as follows:
1. To identify the factors which influence the effectiveness of
microfinance services.
2.To study the impact of microfinance for the upliftment of
weaker sections of the society.
HYPOTHESIS
H0 - There is no significant difference between the impact of
microfinance for the upliftment of weaker sections of the society.

17
RESEARCH METHODOLOGY
RESEARCH DESIGN
Research design is a plan, structure, and strategy of investigation
to obtain information that helps in navigating the present
research journey. Exploratory and descriptive research design is
considered to accomplished the purpose of the present study.
DATA COLLECTION
The research work is based on primary and secondary data
PRIMARY DATA
Primary data is collected through personal interviews,
observations, telephone surveys with the borrowers who belong
to weaker sections of the society.
SECONDARY DATA
Secondary data is collected through journals, RBI and NABARD
reports, published books, annual reports, magazines,
newspapers, websites, etc.

18
CONCLUSION & RECOMMENDATIONS
CONCLUSION
This paper investigates the potentiality of microfinance to act as a
catalyst for the development of India at the macroeconomic level.
It is well established through empirical literature, that
microfinance has a conclusive impact on the individuals and
households who belong to the weaker sections [ CITATION Swa04 \l
16393 ]. Several studies indicate that microfinance has a positive
impact on consumption, income, and the net worth of
households. It has also shown a reduction in the socio-economic
problems through effective parameters i.e. through employment
generation, improvement in health, nutrient, education, and
empowerment of microfinance clients and members of their
households. Microfinance is a tool for the alleviation of poverty.
But every coin has two sides, besides microfinance success, there
are some drawbacks and challenges which hampers its growth
and prosperity. These drawbacks directly affect the livelihood of
the weaker sections in the society. These drawbacks are as
follows:
1. Income disparities;
2. Adoption of evil qualities, abuse of dominance, and
harassment power used by male with a female;
3. Political issues;
4. The high-interest rate is charged on the small loan from
small borrowers;
5. Lack of awareness and literacy in the rural or interior areas;
6. Mismanagement and manipulation in the mudra loan
facility;
7. Poor management of doing work by microfinance
institutions and self-help groups;
8. The demand and supply relationship between the borrower
and the lender for microcredit is not in proper equilibrium;
9. Limited job opportunities both in the public and private
sectors;
10. Fear of taking risks or doing new ventures among
small entrepreneurs;

19
 11. Due to globalization reform, there is tough competition
for the domestic microfinance institution to survive in the
market;
12. High operating cost and stringent norms of RBI to
maintain a huge proportion of Cash Reserve Ratio and
Statutory Liquidity Ratio;
13. Lack of vocational skills and trainings among the
microfinance institution and self-help groups in India;
14. Lack of infrastructure and microfinance institution
facilities in rural hilly and other interior areas.

RECOMMENDATION

1. The loan amount should be increased to meet the

requirements of the borrowers, but this should be done in a
very prudent and diligent manner, depending on the ability
of the client to repay on the maturity date and reasonable
interest should be charged on that loans. This is important
because the entrepreneurs can start new ventures and
other small businessmen can expand their existing
businesses. This will create employment opportunities and
help in the reduction of poverty.
2. The microfinance should enlarge their territories to reach
more poor people (especially in hilly and interior area). MFIs
and self-help groups have a better understanding of the
problems and grievances of the poor sectors so that they
can render better and flexible services to increase the
satisfaction levels of the poor borrowers.
3. Microfinance institutions should provide training skills and
knowledge in time to equip their clients in advance.
Customer-oriented training to staff members must be
conducted to teach properly, how to deal with the clients.
Members in the self-help groups should not belong to any
political background and have no personal motive. They
should possess the quality of leadership and have a vision
for the betterment of the poor people.

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4. There should be compliance with scientific management
principles within the system of microfinance organizations.
Apart from this, for the upliftment of weaker sections in the
society, there should be proper utilization of the mudra
loans and other facilities provided by the government.

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