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Microfinance Institutions, as the name suggests, it plans to cater to the financial need of the smallest strata (low-income group) of the society. The smallest category of the society like rural women, peasants, workers and other such small people who have no capacity to visit the banks for loan application in connection with their occupations.
The microfinance industry has achieved an unprecedented growth over the last two decades
Therefore Microfinance Services Regulation Bill has been introduced for the purpose of financial assistance to be provided to an eligible individual directly or by a group mechanism for certain purpose to be achieved by the borrowers(members).
There are various types of microfinance institutions/organizations operating in India. Mainly they are like
Joint Liability Group (JLG), Self Help Group (SHG), the Grameen Bank Model and Rural Cooperatives etc. Having main aim of financial inclusion of smallest person of the society.
However, it is not easy to operate smoothly by such MFIs as there are many challenges faced by the Indian microfinance industry.
The main area of its operation is confined to the poorer section of the country, over-indebtedness is a common and serious challenge faced by the MFIs.The members have generally borrowed the funds from other available sources. There are some of the other challenges also and they are like
There are many structural weaknesses of RRBs, cooperative societies, and urban cooperative banks, thus the microfinance movement has a remarkable presence in the Indian credit market.
However, the RBI has clearly specified the regulatory framework for MFI which guide them to function smoothly and it is summarized as below:
As per the RBI, NBFC – Microfinance Institutions means a non-deposit taking NBFC (other than a company formed and registered under section 25 of the Companies Act, 1956) that fulfills the necessary conditions pertaining to minimum net owned funds, net assets criteria, qualifying assets criteria and other incidental requirements related to the loan disbursement to the members. The regulatory guidelines of RBI help a lot to grow, expand and develop the MFIs in a systemic way.