"Micro Finance is the provision of thrift, credit, and other financial services and products of very small amounts to the poor in rural, semi urban or urban areas, for enabling them to raise their income levels and improve living standards" -NABARD
Poverty is a global phenomenon. Lack of capital has been the chief obstacle in the path of alleviating poverty. Among the many measures, doling out money as charity and subsidy has failed to make an impact. Receiving money at no cost has been found to make the poor complacent. With grants, the recipients exhibit no accountability and rarely put the funds to any productive use. Studies have shown that one time capital has little or no effect in eradicating poverty, rather, a consistent source of credit and insurance are the tools necessary.
Cumbersome, lengthy procedures, lack of collateral and poor awareness has kept poorer sections of society away from banks and financial institutions . From a bank's perspective the cost of operation makes it an unattractive proposition as providing these services require a reach at far flung locations and large number of people to manage such operations. In such circumstances the poor have no option but to rely on local moneylenders who charge as much as 5% to 10% interest per month (effective 100 %-120% P.a) , plunging the poor further into a debt trap. Microfinance provides an ideal solution for bridging this gap – it provides capital on easier terms as well as it makes the borrower responsible. Micro finance plays a multifarious role in eliminating poverty. It increases household income, which in turn leads to food security, asset building, and funding children's education. Women account for the majority of clients for Microfinance. It is a means of self empowerment in a society that undermines her value and dictates social structure, leaving her vulnerable. Microfinance increases her income, makes her a business owner and thereby drastically reduces her external dependence. Today, Microfinance has become an agent of change in the economic scenario of rural and semi urban India. It is modelled on the Grameen Bank's highly successful microfinance venture with the concept of Joint Liability Group's or JLG's. Each JLG consists of 5 to 10 members who are women. To qualify, each of these women, they must be engaged in an economic activity that is lawful, sustainable and has a stable cash flow. Each member mutually backs the guarantee of the other.