Poverty exposes the poor to unfavorable, unbearable and uncontrollable circumstances, restricting them to avail services from formal banking sector. Imminent need for providing required financial services to needy for improvement in standard of living through an organized sector gave birth to microfinance in India. Microfinance institutions have come a long way in bringing a change by benefitting poor and underprivileged by providing access to capital. Further, digitization of microfinance institutions has emerged as the new wave and these institutions are persistently working on technology advancement to enhance efficiency and effectiveness. This working paper traces the evolution of the Microfinance revolution in India as a powerful tool for poverty alleviation. Where institutional finance failed Microfinance delivered, but the outreach is too small. There is a question mark on the viability of the Microfinance Institutions. There is a need for an all-round effort to help develop the fledgling Micro finance Industry while tackling the trade-off between outreach and sustainability.
This paper delineates various aspects where government needs to play a role. The paper also focuses on the developmental role in the economy, emphasizing scale-up of the microfinance industry where the key issues are diversification of access to funds, innovations in distribution, infrastructure and education, and the use of new technologies such as Mobiles, and the Aadhar scheme under the Unique Identification Authority of India. The paper discusses the factors and theoretical position associated with evolution of microfinance and its global acclaim based on it being a Win-Win proposition for both Micro Finance Institutions (MFIs) and Customers.
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