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Approximately 80% of India comes from the rural sector, which mainly adopts the traditional methods of saving like buying gold, land, etc. Even their borrowing modes do not differ as they do not not tread away from the usual mode of looking towards the lenders for help. This segment has mainly remained untouched by financial institutions owing to credit risk, lack of tangible proof for assessment of income, unacceptable collaterals such as crops, utensils, and jewelery among others. With the entry of microfinance the picture undergoes a beautiful change much to the amazement of and all!

All About Microfinance
Small drops form an ocean, taking cue from this saying, numerous NGOs and microfinance institutions (MFIs) have formulated strategies to dole out a wide array of things. Microcredit is a financial innovation that is generally considered to have originated with the Grameen Bank in Bangladesh. Microfinance refers to the provision of financial services to low income clients, including consumers and the self-employed.

In India, the National Bank for Agriculture and Rural Development (NABARD) finances more than 500 banks that on-lend funds to self-help groups (SHGs). SHGs comprise twenty or fewer members, of whom the majority are women from the poorest castes and tribes. The members save small amounts of money, as little as a few rupees a month in a group fund. They may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees. As SHGs prove capable of managing their funds well, they may borrow from a local bank to invest in small businesses or farm activities. Banks typically lend up to Rs 4 for every rupee in the group fund. Groups generally pay interest rates that range from 12-24% a year, based on the flat calculation method. Nearly 1.4 mn SHGs comprising approximately 20 mn women now borrow from banks, which makes the Indian SHG bank linkage model the largest microfinance program in the world. The World Bank estimates that there are now over 7,000 microfinance institutions, serving some 16 mn poor people in developing countries.

Some of the top players in microfinance segment include SKS Microfinance, Asmitha Microfin, Sharadas Womens Association for Weaker Section, Grameen Koota, Saadhana Microfin Society, and Microcredit Foundation of India.

Current Scenario
Remembering the early days, Dewang Neralla, director, Atom Technology says, Yes, there were challenges but we were able to achieve a breakthrough when Sahayta used our mobile for its agents and found that it eases their tasks for loan disbursement and repayment.

Microfinance has accomplished what the formal financial sector has been, so far, unable to: reach millions of poor and low income households across India. At present, microfinance institutions serve 22 mn people, who were once considered unbankable. Grameen Koota alone reaches 2.7 lakh households in Karnataka and Maharashtra, says Suresh K Krishna, managing director, Grameen Financial Services.

Apart from the regular services, MFIs also offer other services like micro-savings, micro-credit, micro-pension, micro-insurance and micro-remittance. In addition financial literacy is also a major non-financial service being extended to this sector. Micro-credit facilities allow the poor to commence income generating activities, while micro-insurance helps create a safety net for their families. This unique model appears to offer higher returns on lower risks that are higher interest rates vis--vis lower default rates attributable to the group based lending practice, where peer pressure ensures timely repayments, adds Shefali Khera, VP and chief marketing officer, Agile Financial Technologies.

The expansive reach of SHGs is now being leveraged by not just financial institutions to lend money, but also by consumer durable players for some of their existing goods and services. This has enabled the unbanked population gain access to vital financial facilities as well as other goods that were earlier beyond their reach.

Microfinancial Reach
Each MFI has a charter to fulfill, which could be philanthropy, based on regional demographics, etc. In a broader framework, MFIs fulfills two main functionsfinancial inclusion of the urban and rural poor and creation of micro-entrepreneurs who till date had little or no access to formal capital. For example, MFIs are lending money to rural entrepreneurs to buy a tractor and rent it out to farmers on a pay-per-use basis. Innovative loan products (unheard of in conventional banking) such as tailor loan and barber loan are being provided to suit the needs of the people who dont need the credit card or traditional home/auto loan bank offer.

Sharing the future plans of Grameen Koota, Suresh K Krishna says, Currently, we operate in Karnataka and Maharashtra, and plan to expand to other states in the near future. We serve 2.7 lakh women from poor and low income households that survive on less than $1 a day; 60% of our borrowers are from rural environments, while the remaining are from urban and semi-urban areas.

	With the aid of the mobile phones, MFI agents can ensure provision of loan and repayments Dewang Neralla, director, Atom Technology
	With GPRS enabled devices, agents can accept deposits, receive payments against the microloans, enable remittances and transfers at the clients doorsteps Shefali Khera, VP and chief marketing officer, Agile Financial Technologies
	Our basic application is embedded in the new SIM cards that operators have started rolling out and it supports most banking activities Sanjay Swamy, CEO, mChek
	The Microfinance Open Source technology allows us to monitor and analyze large volumes of data Suresh K Krishna, managing director, Grameen Financial Services

Drawing our attention to the importance of MFIs, Khera adds, In the future, some of the services where penetration could be increased are remittances and investment advisory solutions, which are tailored for these segments. Most importantly, two key areas that need to be strongly addressed in this segment are education and employment, especially for women. It needs to be borne in mind that microfinance is not about the business of making money for MFIs but about achieving important social development goals for our society.

Talking about their future plans, S Narayanan, director, Madurai Micro Finance, says, Currently, we offer different types of loans to rural women to start small businesses like milk business or set up a petty shop in Tamil Nadu. In the future, we intend to cover the other southern states in India as well. We expect our offerings will prove to be a major contribution in improving rural lifestyle.

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