The microfinance (MF) segment in India is upward at a tremendously muscular swiftness and is also embryonic promptly. Each year, new issues and challenges are terrified up. Microfinance (MF) is an emerging part, playing an essential place in scarcity mitigation for low-income families and women-headed households promoting communal and financial fairness by escalating access and contribution to the official financial system. The ambition of this piece of writing is to present the conceptual framework of Microfinance (MF) and microfinance institutions (MFIs) and to sketch notice to the developments of the microfinance sector worldwide and India in a phased move towards. It is also attempted to scrutinize the status of MFIs in India and to be familiar with their financial services to the poor both in India and outside India and finally to identify the issues and challenges.  Many Challenges are in fronts of this part like Assess Costs and risk, Broaden resource base, Protect client interest, Freedom of setting interest rates and fees, Improve borrower screening and loan assessment, Build on institutional possible, an assortment of micro-entrepreneurs, Trained work forces, Provide direct savings and services, Provide multi-purpose loans.

Microfinance industry enlargement slowed to 24.22 per cent year-on-year in the third quarter of the current fiscal with total loan portfolio standing at Rs 2.11 lakh crore, says a report. As on December 31, 2019, the industry served 5.64 crores unique borrowers through 10.11 crore loan accounts with operations in 619 districts in 36 states and union territories, according to a quarterly report released by Microfinance Institutions Network (MFIN).

Signification of Micro-finance Programme:
A micro-finance agenda organizes its borrowers into small homogeneous groups on the self-help methodology. The cluster configuration process facilitates solidarity among the members as well as participatory communication. It also managerial strengthens the program, so that they could obtain the capacity for planning and functioning of micro-level developmental performance. The factual value of a micro-finance the program lies in the change it can make in the lives of ordinary people. It lies in the access to credit, skills gained, enterprises begun, markets opened up, and homes built and children sent to school. Over the past several years, much has been learned in the way of extending credit to the poorest micro-entrepreneurs. In the present scenario, the study of micro-finance is of utmost significance in India in view of the limited resources and increasing amateurish labour force, as it leads to labour-intensive projects, which necessitate less capital and limited technical know-how. In addition, people of the rustic and urban poor in India are necessary to sharpen their skills in various fields like art; handicrafts, etc., and realize their latent potential.

Therefore, there is an emergence need to study the consequence and its effects on the public i.e., urban poor, rural poor and small enterprises and on the policy framework of the government on implementation of micro-finance and also need to study on the issues and challenges before the emerging Micro-Finance Sector India.

Challenges and Issues:
Micro-finance activities in India have to seriously address the formidable challenges of underdevelopment, poor infrastructure and governance. The Micro-finance movement needs to focus on issues of quality and embedding social performance monitoring as a part of the management information systems. The issue of MFIs charging high rates of interest needs to be looked into. Per unit transaction costs of small loans are high but poor people cannot be charged rates that are higher than commercial bank rates.

A business opportunity and poor quality of services currently provided have to be looked into built-up sustainable micro-finance institutions. The strategic, institutional and connectivity issues related to micro-finance are critical challenges. Strategic issues include the nature of the prevailing paradigm for micro-finance in India; a clearly visible pattern across the country; availability of clearly defined foundation building blocks such as organizing principles, gender performances, and operational imperatives.

Institutional issues include the need for macro institutions to deal with micro-finance activities in India; the beneficiaries of such mechanisms. Connectivity issues include how to involve the Corporate Financial Sector; the role of donor agencies; to address the political issues; the government policy issues. Issues of lenders not willing to deal with small loans, lenders looking for collateral with a clears title, looking at low-income households a bad risk is there to address. The sustainability of the financial transaction of the micro-finance institution is a real issue.

Farm Duties Ahead:
Despite having a wide network of rural bank branches in the country and implementation of many credit-linked poverty alleviation programs, a large number of the very poor continue to remain outside the fold of the formal banking system. The good picture of MF is beginning to be recognized as a profitable opportunity with high risk-adjusted returns. There is a need for proper guidelines to determine the MF set-ups in India. The need is to accelerate the reach of MF in the next few years. Appropriate legal structures should be in place. Therefore, the task before the infant industry in India is as follows to face the challenges: Assess Costs and Risks:  However evident the need for sound cost and risk management may be, cost and risk considerations often rank far behind targets for providing credit and overly ambitious projects without due regard for the capacity of the MFIs to provide services. One of the tasks is making available loan funds at low-interest rates. Improve borrower screening and loan appraisal: Assessing effective credit demand based on repayment potential requires certain skills in an institution. While local expertise is a useful input for the initial vetting of loan applicants, financial appraisal before sanctioning a loan should be left to the staff of micro-finance institutions. Build on institutional potential:  Financial institutions with a track record of effectively providing services to resource-poor households are a safer bet than creating new institutions.

Micro-Finance is a powerful tool in building the capacities of the poor in the management of sustainable self-employment activities besides providing them with other financial services like savings, housing, and consumer credit, and insurance. Micro-credit will have to play a critical role in the urban context as well as in the rural areas require a new and innovative service and pricing approach so that India aspires to make any positive impact on its citizens’ economic well-being. The local and national governments have needed to play an important role in ensuring the growth and improvement of micro-finance. The main conclusion of this article is that micro-finance can contribute to solving the problem of inadequate housing and urban and rural services as an integral part of poverty alleviation programs.

Dr. Nalla Bala Kalyan

Author Profile:
Dr. Nalla Bala Kalyan working as an Associate Professor in the Department of Management Studies at Sri Venkateswara College of Engineering, Tirupati. He has done his Doctorate from Sri Venkateswara University, Tirupati, Andhra Pradesh, in the year 2014”. He has 11 years of experience in research and teaching. He is the author of more than 60 research papers published in various national & international journals with high Impact Factor and citations (Google Scholar Citations 60, h-index 3, and i10-index 2; SSRN- Elsevier Author Rank is 100,294 out of 448,326, Research Gate Score 4.79 Citations 20, h-index 3). He has attended more than 40 National and International conferences/seminars and presented papers that appeared in the proceedings published with ISBN and he has Authored & Edited 13 books. He is the Editorial/Advisory/Reviewer Board Member of more than 40 National & International Journals. He has organized many programs (DST-NIMAT Projects, Govt. of India) for imparting entrepreneurship skills among students and faculty.

He has received more than 10 awards from National and International organizations.  [Most Promising Educators in Higher Education across India for the Year 2019 – ULeKtZ Wall of Fame,Mewadev Laurel Award-Contemporary Literary Society,Excellence Teaching in Higher Education award for the year 2019-(SMCRAC) Saint Martin’s Centre for Research & Accreditation Commission,Melbourne, Australia, Distinguished Scientist Award from IJIEMR-Elsevier -SSRN]. He has various professional affiliations as Fellow Member of FSASS, FMERC, FSROSET, and FIARA. Life Time Member of MTC Global, IMRTC, ISRD, AICTSD, INSC, IAASSE, IAER.


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