Microfinance Mavericks: Driving India's Inclusive Growth Agenda

Updated On : June 2024

Microfinance has emerged as a pivotal force in fostering inclusive growth across India. By providing financial services to underserved and marginalized communities, microfinance plays a crucial role in uplifting millions out of poverty and driving economic development. As we delve into the transformative impact of microfinance in India, it is essential to understand its foundational principles, current landscape, government interventions, and the critical role of technology in enhancing its efficacy.

The Current Situation of Microfinance in India

India’s microfinance sector has undergone significant transformation over the years. Long recognized as reliable lenders, Microfinance Institutions (MFIs) have emerged as key players contributing significantly to India’s inclusive growth story. The sector’s growth and consistent performance demonstrate the resilience of microfinance borrowers, who exhibit the right intent for borrowing and ensure proper repayments even in the face of macroeconomic challenges.

As of September 2023, SHG-self-help group lending reached INR 5.8 lakh crore. Women’s economic independence is a major contribution to the rise of these numbers. There has been an increase in participation of the women workforce up from 23.3% in FY 2018 to 37% in FY 2023, this has helped the economic ecosystem to improve, better control of household finances, and a healthy social welfare.

Indian Government Initiatives Supporting Microfinance

Government initiatives play a crucial role in channelling credit flow to underserved sectors. Here are some notable efforts:

• Priority Sector Lending (PSL): The Reserve Bank of India (RBI) mandates that a portion of bank loans be directed toward priority sectors, including microfinance. This ensures that credit reaches marginalized communities.
• Micro Units Development and Refinance Agency Ltd. (MUDRA) Yojana: Launched by the Indian government, MUDRA provides financial support to micro and small enterprises. It facilitates loans through various financial institutions, promoting entrepreneurship and self-employment.
• Loan Co-origination: RBI initiatives allow banks and non-banking financial companies (NBFCs)/MFIs to jointly originate loans. This collaboration enhances credit access for microfinance borrowers.
• Pradhan Mantri Mahila Shakti Kendra: Schemes like this empower women by providing easy credit access, assistance in starting businesses, and financial literacy programs.
• SIDBI’s Prayaas: The Small Industries Development Bank of India (SIDBI) focuses on supporting small entrepreneurs excluded from traditional financial services. SIDBI collaborates with non-profit organizations and social ventures to provide affordable borrowing options.
• NABARD establishment: The establishment of the National Bank for Agriculture and Rural Development (NABARD) and its various schemes, such as the SHG-Bank Linkage Program, have further strengthened the microfinance ecosystem by fostering self-help groups and promoting rural entrepreneurship.

Need of Technology for Microfinance

As the microfinance sector expands, the need for technology and automation becomes increasingly critical. Leveraging technology can enhance operational efficiency, reduce costs, and improve service delivery. For instance, lending management software enables MFIs to streamline loan processing, monitor repayments, and manage risks more effectively. Automation tools can also facilitate better data management and analytics, providing insights into borrower behavior and creditworthiness.

Field agent mobility solutions, such as mobile applications and digital payment platforms, empower agents to conduct on-the-ground activities more efficiently, ensuring timely disbursals and collections while reducing the scope for human error and fraud.

Moreover, technology can enhance the customer experience by offering digital interfaces for loan applications, repayments, and financial literacy programs, thereby fostering greater engagement and satisfaction among clients.

Microfinance in India is experiencing significant growth, with an expanding client base and increased loan portfolios, driven by supportive government initiatives and technological advancements in financial services.This sector is crucial for financial inclusion, empowering millions of underserved individuals, and fostering economic development.

Nelito Systems’ FinCraft^TM Core Microfinance Software Solution automates all business processes of MFI on a single platform, enhancing customer reach and ensuring secure, compliant operations. The solution, derived from FinCraft^TM CBS, includes an Android-based field mobility solution and a modular design for easy customization. It supports faster loan processing, insurance integration, and credit bureau ratings, all managed through a comprehensive Android application for end-to-end field operations.

For more information, contact marketing@nelito.com or visit our website.