Microfinance play a crucial role in Poverty alleviation

Rural development has always been an important issue in all discussions pertaining to economic development, especially ofdeveloping countries, throughout the world.. Over 3.5 billion people live in the Asia and Pacific region have some 63% of them in rural areas.

Ours as a developing nation that needs to up-bring people in the rural areas. This is because, though India is growing at an amazing growth rate of 7% and about to touch a two digit one,the facts remain that more than 70% of the population lives in villages,depending primarily on agriculture, and the growth rate shown by agricultural sector was only 2.77 per cent in the last financial year. The growth rate of Indiais majorly contributed by Services and Manufacturing sectors and this suppresses the insufficient growth rate of agricultural sector and the huge majority depending on that from coming to the limelight. This is definitely not a good situation. Because, a nation can be considered to be ‘developed’ onlywhen it’s entire population achieves economic stability, not just the urbanpopulation or just one sector!

Indiais a country of villages and about 50% of the villages have very poor socio-economic conditions. Since the dawn of independence, concerted efforts have been made to ameliorate the living standard of rural masses. So, rural development as an integrated concept of growth and poverty elimination has been of paramount concern in all the consequent five year plans. Rural Development(RD) programmes comprise of following:

Provision of basic infrastructure facilities in the rural areas e.g. schools, health facilities, roads, drinking water, electrification etc.Improving agricultural productivity in the rural areas.Provision of social services like health and education Implementing scheme for the promotion of rural industry, increasing agriculture productivity, providing rural employment etc.Assistance to individual families and their Self Help Groups (SHG) living below poverty line by providing productive resources through credit and subsidy. The major factor accounted for high incidence of rural poverty in India is the low asset base.According to Reserve Bank of India,about 51 % of people house possess only 10% of the total asset of India.This has resulted low production capacity both in agriculture and Manufacturing sector. Rural people have very low access to institutionalized credit factor of production.

To mitigate this aggravated condition of lack of providing institutionalised credit, in Nineties, National bank for agricultureand rural development (NABARD) launches pilot projects of Microfinance tobridge the gap between demand and supply of funds in the lower rungs of ruraleconomy. Microfinance, the buzzing word of this decade was meant to cure the illness of rural economy. With this concept of Self Reliance, SelfSufficiency and Self Help gained momentum. The Indian microfinance isdominated by Self Help Groups (SHGs) and their linkage to Banks. Also, Microfinance is an interesting concept. You lendsmall risk-bearing money to those at the bottom of the pyramid, lessprivileged, for whom commercial banks are a no; you charge them at varying interest rates (ranging from 150% higher than the prime lending rate all theway to almost 50% lower); and then you wait in the anticipation that these lessprivileged people will generate a higher income by which they can repay theirEMIs. So here Trust is the major asset and this asset will not depreciate but only appreciate.

But there are a few loopholes in this microfinancing as well. Many have found that a majority of the loan applications received so far is for working capital or short term. Someone’s sister isgetting married, or someone needs an eye operation, or someone needs to paydaily bills - so he or she takes a small loan. The pressure to repay no matterwhat the interest is highly strong. When the time comes to shed those monthly EMIs, the next best solution is refinancing. So by the second or third month,we have already woven ourselves into a cobweb of high interest debt

Let’s hopethat these small efforts done by Micro-finance institutions and banks would mark the beginning of a new economic revolution.