ROLE OF MICROFINANCE AND SELF-HELP GROUPS IN FINANCIAL INCLUSION

Abstract

The importance of the rural banking and microfinance in the economic development of a country cannot be overlooked. As Mahatma Gandhi pointed out “Real India Lives in Villages’, and village economy is the backbone of Indian economy the existing extensive formal banking structure is still not sufficient to meet the growing demand of rural credit. Financial inclusion is delivery of financial services more especially the banking services at an affordable cost to vast sections of disadvantaged and low-income groups. Financial inclusion aims at drawing the “Unbanked” population into the formal financial system so that they have the opportunity to access financial services ranging from savings, payments, and transfers to credit and insurance. Major commercial banks in India have been nationalized with the objective of establishing a strong financial structure and therby paying the path for the economic and social development of the nation. It is now widely acknowldeged that financial exclusion leads to non-accessibility, non-affordability and non-availability of financial products. Limited access to funds in an underdeveloped financial system restricts the availability of their own funds to individuals and also leads to high-cost credit from informal sources such as moneylenders. Due to lack of access to a bank account and remittance facilities, the individual pays higher charges for basic financial transactions. Absence of bank account also leads to security threat and loss of interest by holding cash. All these impose real costs on individuals. Prolonged and persistent deprivation of banking services to a large segment of the population leads to a decline in investment and has the potential to fuel social tensions causing social exclusion. Thus, financial inclusion is an explicit strategy for accelerated economic growth and is considered to be critical for achieving inclusive growth in the country.