Friday, August 31, 2007

Micro-Finance for Rural Empowerment

Ever since the Grameen Bank of Bangladesh pioneered and succeeded in the concept of Micro-Finance, a lot of NGOs and other organizations across the world started implementing it in their countries. The waves of this occurred in India too.

In Micro-Finance, loans of lower denominations (Rs. 500, Rs. 1000 etc.) are given to people for a short term (3 months, 6 months, 1 year etc.) and the payment frequency is typically in weeks. These loans have an astounding repayment rate of more than 98% which even front-line banks aren’t able to match. Such loans are similar to the normal village lending we see in local markets and mandis.

A lot of organizations in India work towards giving micro-credits to rural entrepreneurs. Vikram Akula's SKS Micro-Finance has made its niche in the Indian sub-continent and has shown a phenomenal growth rate, changing lives of millions. A lot of NGOs are also in the foray. While there are criticisms against Micro-finance saying that it will take the rural entrepreneur to a perpetual debt trap, the interest rates charged are very high etc., the positives of Micro-finance can’t be ignored. It gives a villager the money he requires at the time he wants for starting his own small business or buy a cow and things like that. Some banks are even giving micro-loans to rural entrepreneurs considering it as part of CSR (Corporate Social Responsibility). This is indeed a commendable effort.

India, as a developing nation, needs to up-bring people in the rural areas. This is because, though India is growing at an amazing growth rate of 9% and about to touch a two digit one, the facts remain that more than 70% of the population lives in villages, depending primarily on agriculture, and the growth rate shown by agricultural sector was only 2.77% in the last financial year. The growth rate of India is majorily contributed by Services and Manufacturing sectors and this suppresses the insufficient growth rate of agricultural sector and the huge majority depending on that from coming to the limelight. This is definitely not a good situation. Because, a nation can be considered to be ‘developed’ only when it’s entire population achieves economic stability, not just the urban population or just lone sectors! Let’s hope that these small efforts done by Micro-finance institutions and banks would mark the beginning of a new economic revolution in India.


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