Unearthing the character of microfinance in self-employment generation for bridging the gaps of disparity: a case study

Abstract

The microfinance sector is all about making credit available to low-income households through an array of institutional channels, encompassing scheduled commercial banks, regional rural banks, small finance banks, self-help groups, business correspondents, non-banking financial companies (NBFCs), cooperative banks and microfinance institutions (MFIs) registered as NBFCs. The Andhra Pradesh microfinance crisis of 2010, which led to the Y. H. Malegam committee regulatory framework applied to NBFC/MFIs, brought microfinance to the core of policymakers in India. At present, microfinance schemes serve to bridge economic disparity through the generation of self-employment in the rural sector. A qualitative study was undertaken in the states of Uttar Pradesh and Bihar in India to identify the influence of microcredit activities in the country for self-employment generation and understand the problems and issues from the perspective of actual borrower. The method employed was a case study analysis of actual borrowers to evaluate the contribution of microfinance towards the betterment of their lives, besides understanding the hassles faced by the borrowers in the entire process of microcredit lending, utilisation and repayment. In India, microfinance is still in its nascent stage despite the government’s increasing focus on the proper functioning of all microfinance players through close supervision and digitisation. The study reported that government should focus on providing technical and business support to ensure that money lent is invested astutely and assist in the social and economic welfare of the beneficiary, not trapping them in indebtedness. The compulsory training and support regarding technical know-how, business procurement, financial planning and marketing skills clubbed with efficient monitoring facilitates achieving the real objectives behind microfinance. The challenge lies not in sanctioning credit but in ensuring the proper utilisation of the money to avoid non-payments and defaults. The study in hand proposed that integrating few alterations in microfinance system comprising knowledge sharing and training, raising microcredit amount and providing pre- and post-credit support will assist borrowers economically, socially and psychologically. Further microfinance help combat social issues like malnutrition, gender discrimination, poor literacy rate, domestic violence and poor quality of life in rural India through women empowerment and self-employment generation.