Microfinance Industry in India

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The Government of India (GOI) established NABARD in 1982 with a mandate to formulate policies for expanding rural credit and providing technical assistance and liquidity support to banks and financial institutions which were involved in providing rural credit. During the early 1980s, NABARD conducted a lot of studies to take stock of the credit market in India..... The studies revealed that though India had made good progress in expanding the rural banking system, financial service exclusion was rampant and was alarmingly high where the poorest and most vulnerable sections of society, especially women, were concerned.....

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The findings of the studies further revealed that a formal banking system with its policies and procedures was not suitable for meeting the pressing credit demand of the poorer sections of society. Various government programs and poverty alleviation schemes, though cheap and subsidized, remained inaccessible for them to fulfill their immediate credit needs. Most of the credit needs of the poor in rural areas were met by local money lenders. These money lenders offered easier access to credit without resorting to background checks. But they charged very high interest rates for the loans they gave, with the rates varying between 24 percent and 120 percent annually. ....

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