Microfinance in Rural Areas : Is Microfinance a Boon or a Bane for One’s at the Grassroot Level ?

Introduction

Poverty, a raging economic issue, exists in most of the developing countries. Inequality in income distribution, which is chronic in developing countries, especially in India, is sought to be one of the major reasons. Despite being progress made in the last two decades in the sectors of service and production,India still holds a leading dependency of 50% of population on the agriculture sector. This population has been largely deprived of formal financial services leading to lackluster performance of the agricultural sector. Since the concept of microfinance was introduced by Md. Yunus to provide credit facilities to the poor and boost their entrepreneurial potential, microfinance has taken a range of forms.

Microfinance – A Bane / the other half of microfinance / darkside of microfinance/microfinance – does it stab at the back of the poor?

So far in terms of poverty reduction, two crucial issues have emerged: first, to what extent has microfinance contributed to creating a long-running and everlasting difference to help households escape poverty? Second, to what extent does microfinance curriculum reach the worst off, “chronic poor” and not just the “transient poor”.

The real truth concludes that microfinance helps those above the poverty line more than those below the poverty line. In some instances, it is observed that microcredit makes life for those at the base of the pyramid even worse. Though secondary arguments in the past few years   contribute to the fact that  microfinance creates debt traps for the poor whereby they sink into the vicious cycle of repayment of loans, and due to increasing interest rates, they are never able to escape. In other cases, debtors go as far as to take their own lives. MFIs’ charge a very high rate of interest (12-30%) as compared to commercial banks (8-12%). Due to the issues of over-indebtedness caused by the charging of high interest rate, rate of suicide of farmers increased in states like Assam,Andhra Pradesh and Maharashtra. This has benefited the industry’s players but left the customers in a worse situation than before.

Evidence from parts of India offer a similarly stark prognosis—microfinance does not seem a good bet to end poverty until and unless there is someone who makes sure whether the credit is being used in consumption rather than making use of it from an investment perspective.

Microfinance as a Poverty Nostrum

Therefore,rather than seeing microfinance as a poverty nostrum,it can be stated that microfinancing has expanded new opportunities for the poor or the disadvantaged.Self Help Groups are a popular microfinance model in India, particularly among rural women.

Even though there are businesses running in the villages but not at that level which can be sustained.one who couldn’t sustain curses the lending rates but nobody concludes on the

honest reason i.e no knowledge on investing. Acres and acres of wastelands in the villages are still useless. Even now only one household works and that also to meet the expenses.Very few left behind with the spark of startups but even that turns off once they find out that there is no helping hand.

This sights the availability of Government i n this situation not only to act as a helping hand but also to regulate the finances and the rates. Even if a scenario arises that microfinance starts showing positive effects, what about the business which would initially take place in the cities. A proper chain of markets can be set up where central authorities can act as an invisible hand to make sure that no villagers get exploited. This would also motivate the scent of production in wastelands between villagers(specially,poor people). Area restricted shops can be another way of sustaining business(in the sense of shops) in villages.

Furthermost ,taking these concerns into actions will not only influence villagers to start something of their own but also the curse of heavy installments would not be a strain anymore once they start earning with the initial investment (credit).

Lenders Market

Obviously, once the government starts handling the situation the financers(lenders) would suffer some restrictions in their rates. But if the scenario is visualised in the future or long term perspective, then it would rather create a fixed market for the lenders to dispose of their money as credit to these villagers as more the business grows in the village the more credibility as well as microfinance relationship with the grassroot level people increases.

Right now the condition clearly states the reason for non credibility of these poor people but what about credibility of people who are involved in small businesses all around the urban parts in India.What is the reason that they have credibility but not these poor village people.Someone needs to take a stand and even these people have the right to enlighten themselves that villages can also be turned out into markets, a version of well set up market with provisions and regulations better than urban markets.

Conclusion 

Execution of models in our Indian economy always misses the target of 100 percent achievement. And what comes on the way is the black strip of cloth which blind folds the authorities to look at a larger picture of converting village into something not achieved or thought of before. This would not only be a success step but a new platform for digitalisation, startups,etc where microfinance would have a lead role as well as a sustainable future in the rural areas for the unknown who are to be known.