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Role of Microfinance Institutions in Rural Development
Jul 2010, Vetrivel, S. & Kumarmangalam, S.
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Linking formal financial markets and grassroots organizations through microfinance

This paper evaluates MFI successes and failures around the world, and incorporates lessons leant in a model microfinance institutional mechanism for India.

Successful microfinance operations demonstrate that the poor repay their loans and are willing to pay higher interest rates if they can access credit. The poor also save, and hence, microfinance should provide them savings facilities. Attaining financial viability and sustainability is, however, a major institutional challenge. Microfinance should:

Mobilize deposits in order to expand outreach;
Be grounded on market principles;
Contribute to solving the problem of inadequate housing and urban services;
Provide multi-purpose loans for income generation, housing improvement and consumption support;
Conduct research on demand for finance and savings behavior of borrowers to determine the mix of multipurpose loans;
Enhance creditworthiness of the poor and enable them to qualify for long-term credit from the formal sector;
Build financial discipline among borrowers and educate them about repayment requirements.

Eventually, it would be ideal to enhance the creditworthiness of the poor to enable them to access credit from the formal sector. MFIs can contribute towards this by building financial discipline and educating borrowers.

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16 Sep 2010




Dr Magid Aamer Consultant Egypt

26 Aug 2010
Microcredit Reaching the Poor

I work for a small organization that works with the marginalized in the city of Kolkata. We started a microcredit initiative a little over two years ago in two of our organization's projects/community centers. We have received a tremendous response from community members around the slum areas of the city where our projects are located. The poor in the city constitute a huge portion of the total population of the city and we are advancing small loans to the "working poor," those who are below the poverty line. Aside from the fact that the goals of microcredit mesh quite well with our organization's goals, we are surprised to see the demand for funds from the poor, who in almost all cases, do not go to the bank at all. They would much rather take loans from money-lenders mainly because of the easy avaibility of cash at huge interest rates and go through the pain of trying to pay back the principal amount along with the interest over a long period of time. Access to credit for the poor, therefore, is the future in a city such as Kolkata and probably in many other parts of the country.

Subhasis Chatterjee Emmanuel Ministries India

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Journal Title:
International Journal of Information Technology and Knowledge Management

Journal Volume/Pages:
2(2): 435-441

Publisher(s):
International Journal of Information Technology and Knowledge Management