Microfinance in India has come a long way since its inception in the 1970s. It has played a crucial role in providing financial access to the poor and marginalized sections of society, who were excluded from the formal banking sector. Here is a brief evolution of microfinance in India:
- 1970s: The first microfinance institutions (MFIs) in India were started in the 1970s, primarily as part of the rural development efforts of the government. These institutions provided small loans to farmers and rural entrepreneurs.
- 1990s: In the 1990s, the concept of microfinance was popularized by NGOs and self-help groups (SHGs). The focus was on providing credit to the poor and marginalized sections of society, particularly women, to help them start small businesses and become self-sufficient.
- Late 1990s to early 2000s: The microfinance sector in India witnessed a significant growth during this period, with the emergence of many MFIs, both for-profit and non-profit. These MFIs focused on providing microcredit to the poor and marginalized sections of society, particularly in rural areas. The government also started promoting microfinance as a tool for poverty alleviation and rural development.
- Mid-2000s: The microfinance sector in India continued to grow, with many MFIs becoming profitable and attracting investments from private equity and venture capital firms. However, concerns regarding high interest rates charged by some MFIs and aggressive recovery practices started emerging.
- Late 2000s: The microfinance sector in India faced a crisis in the late 2000s, with many borrowers defaulting on their loans due to various reasons, including crop failures and economic downturns. The crisis was exacerbated by the aggressive recovery practices adopted by some MFIs. This led to regulatory interventions and a tightening of norms for MFIs.
- 2010s: The microfinance sector in India underwent significant regulatory changes in the 2010s, with the introduction of the Microfinance Institutions (Development and Regulation) Act, 2010. The Act provided for the regulation and registration of MFIs and set limits on interest rates charged by them. The sector also witnessed the emergence of new players, including small finance banks and payments banks, which focused on providing financial access to the unbanked and underserved sections of society.
In conclusion, microfinance in India has evolved from being a part of rural development efforts to a sector that attracts investments from private equity and venture capital firms. The sector has played a crucial role in providing financial access to the poor and marginalized sections of society, particularly women. However, the sector has also faced challenges, including high interest rates and aggressive recovery practices. The regulatory interventions in the 2010s have brought in much-needed norms and regulations, and the emergence of new players has added further impetus to the growth of microfinance in India.