Contribution of Microfinance Sector to India’s Gross Value Added likely to grow
According to a recent study by the National Council of Applied Economic Research (NCAER), the contribution of microfinance to India’s Gross Value Added (GVA) is likely to increase.
According to a study by NCAER, the microfinance sector contributed about 2% to India’s GVA in the year 2018-19 and about 5.5% to the entire financial sector.
GVA is a method of measuring the productivity of an economy.
Microfinance refers to financial services provided to low-income individuals or groups. These people or groups are usually deprived of traditional banking services.
The Malegam Committee (2011) helped establish the microfinance sector as a legit asset class (legal asset class).
Delivery Model of Microfinance in India:
- Self-Help Groups (SHGs) Bank Linkage Program (SBLP): The history of the microfinance movement in India can be traced back to the SHG-Bank Linkage Program. It was started as a pilot project by NABARD in the year 1992.
- Micro-finance Institutions (MFIs) such as Non-Banking Financial Companies (NBFCs), Cooperatives etc. are regulated by the Reserve Bank of India.
- Bank partnership model
- Banking correspondent
Importance of Microfinance:
- Due to this, women empowerment has been encouraged by giving loans directly to women.
- This has increased the status of women in the family, community and society at large.
- It promotes financial inclusion to enable poor and low-income households to come out of poverty, increase their income levels and improve overall living standards.
- Loans are provided to the poor without any collateral.
- It also helps in employment generation.
Challenges of Microfinance:
- The borrowers owe a lot of debt.
- The interest rate is comparatively very high.
- Microfinance institutions are heavily dependent on commercial banks for their funds.
Source – The Hindu