MICROFINANCE IS a provision by which funds are made available to poor people. Its aim is to provide service to those people who are away from the mainstream banks. It started as philanthropy but is slowly gathering commercial ground. The idea was discovered by Nobel Laureate Mohammed Yunus, three decades ago. The purpose was to improve the standard of living of low income groups. Nearly 70 per cent of India’s population is untouched by formal banking system. A great business can be sensed here. Around 2,500 microfinance institutes (MFI) exists in the world. They provide funds to those low income group who have entrepreneurial spirit. The funds are made available at low interest rate. Also no collateral is given for the borrowed funds. Flexibility of payment is the main point of attraction. This initialisation has saved many poor people from harassment by landlords. The modus operandi is very unique. Altruist make funds available. The group of people come together to form non governmental organisation (NGO). The NGO establishes its branches in the rural places where funds are not easily available. Now the platform is set for distribution of money to the needy.
Five financial institution are coming together to form MFI. The move is made to tap the lowermost section of the society. Joint venture parties includes Life Insurance Corporation, IFC (a world bank wing), National Housing Bank, Standard Chartered and Union Bank of India. The new entity will be called as Financial Inclusion Corporation of India (FICI).
From the past experience of being successful in funding scarce pocket of the economy, the FICI has been formed to operate more efficiently and more effectively on the national scale. The successful operation of FICI will abolish the income inequality in the society. This will increase per capita income of the nation and hence would raise a few more million people above the poverty line.
Philanthropists have developed the microfinance sector to its current level. Now it is the turn of private sector big players in the financial sector to drive microfinance sector ahead and make it a part of the mainstream.