Financial Inclusion through Micro Finance

Despite the rapid spread of financial and banking system in India after Independence in 1947, a large segment of the societyparticularly low-income households in rural areashas very little access to financial services, both formal and semi-formal. As a consequence, many of them have to depend either on their own or high cost informal sources of finance, such as moneylenders. This is particularly true of the sporadic financial requirements of poor households for emergency purposes such as medical treatment. It is well-known that poor people, small entrepreneurs and other disadvantaged groups are presently excluded from the financial sector, which leads to their marginalisation and denial of opportunity to grow and prosper. Hence, financial inclusion of the disadvantaged and marginalized sections of society is a prerequisite for healthy and harmonious socio-economic development of India. Financial inclusion is the process of providing wide range of financial services and adequate credit in time to the weaker sections and low-income groups at an affordable cost. Merely having a bank account may not be a good indicator of financial inclusion. The essence of financial inclusion is to ensure that a range of appropriate financial services are available to every individual so that he/she may show his/her worth to the society. It has been widely accepted that micro finance is the most important tool of financial inclusion. Provisions of micro finance to the poor, especially women in rural areas, coupled with supporting activities like education, training and skill formation, can transform Indian economy on desired lines. Self-help groups (SHGs) represent a unique approach to financial intermediation. The approach combines access to low-cost financial services with a process of self-management and development. The present work is an attempt to emphasize the importance of financial inclusion of the poor and underlines the role of micro finance and SHGs in this endeavour.