Contribution of Micro-finance Institutions for the Development of Rural Community Region- Its Critical Aspects of the Success

Ms. Shivi Mittal , Dr. Prabhat Srivastava

Microfinance emerged as a noble substitute for informal credit and an effective and powerful instrument for poverty reduction among people, who are economically active, butfinancially constrained and vulnerable in various countries. Microfinance covers a broad range of financial services including loans, deposits and payment services and insurance to the poor and low-income households and their micro enterprises. Microfinance institutions have shown a significant contribution towards the poor in rural, semi urban or urban areas for enabling them to raise their income level and living standards in various countries.In developing countries like India the structure of economy is dualistic. The rich getricher and the poor get poorer. This worsens the access of poor to economic opportunities andreaches for formal financial services. Rural people in India suffer from a great deal ofindebtedness and are subject to exploitation in the credit market through high interest rates and lack of convenient access to credit. They need credit to fund their working capital needs on aday-to-day basis as well as long term needs like emergencies or other income related activities.So the need for financial assistance is essential to alleviate poverty for consistent economic growth. Despite the numerous achievements made by the microfinance service providers, employees and recipients of the services, there has been some setbacks which made the sector unstable, least trusted and unattractive in the early 1990s such as the frequent scam where depositors moneys were taken away, ineffective monitoring of the operators by the central bank; this situation lead to many mushroom microfinance companies springing up and dying out at tender stages therefore collapsing smaller businesses. In recent years, the criticism has also been centered on the very high interest rates charged by most microfinance services providers. This has caused the collapse of some small scale business therefore not serving the purpose for which it was intended to achieve i.e. poverty alleviation. Borrowers then become over burden with payment of loan or interest. This paper examines the actual attainment of success that microfinance institutions and non-profit organizations attempts for the growth and development of the society specifically the rural region. The financial Inclusion were providing by these organizations for accelerating the growth and development of rural region but we through this paper are trying to examine whether the services availed by rural people are really utilizing for their self growth and attainment and whether the Micro Finance Institutions (MFIs) are contributing for the growth of people residing in rural area. We are also trying to find out whether there are any other reasons that why people are not approaching these services or are there any hurdle in getting the facilitation of those services. It has been observed through literature review that financial inclusion provided by Government through these MFIs are not been reached to rural areas. The reason being the unhealthy practices been adopted at both receiver and the sender end.