Can Microfinance Institutions Bring Formal Credit to the Underserved?
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Synopsis
Explore how the government's commitment to Microfinance Institutions (MFIs) can bridge the formal credit gap for underserved populations. M Nagaraju emphasizes the evolving role of MFIs in financial inclusion—serving millions, primarily women, and adapting to meet diverse financial needs.
Key Takeaways
- MFIs are essential for financial inclusion.
- Over 300 million people lack access to formal credit.
- 95% of MFI clients are women.
- MFIs are evolving to meet diverse financial needs.
- NABARD supports MFIs in enhancing their capacity.
New Delhi, Nov 13 (NationPress) The government is dedicated to bolstering Microfinance Institutions (MFIs) in promoting financial inclusion, as these entities can significantly contribute to providing formal credit to the underserved, stated M Nagaraju, Secretary of the Department of Financial Services, on Thursday.
Established MFIs have cultivated a committed customer base that has matured financially and may now seek offerings beyond traditional microfinance products.
They are progressively transitioning from a volume-driven growth model to one that is informed by customer insights.
“Over the past 18 months, the number of MFI borrowers has declined by more than 1 crore, with outstanding loans decreasing by over Rs 1 lakh crore, thanks to self-regulatory measures implemented by MFIs,” Nagaraju remarked at an event.
As per Sa-Dhan, the event organizer, approximately 300 million individuals remain outside the scope of formal credit. MFIs can play a critical role in bridging this gap, he added.
Currently, MFIs serve over 6.72 crore customers, with women accounting for 95 percent of this figure, highlighting their essential role in providing credit to low-income and underserved households.
About 91 percent of loans acquired through MFIs are utilized for income-generating activities.
“While NABARD has been assisting farmers in their agricultural pursuits, as they diversify into non-farm activities, MFIs can also facilitate credit for these non-farm income opportunities,” noted Shaji KV, Chairman of NABARD.
Moreover, NABARD will persist in collaborating with MFIs to enhance their capacity through training initiatives, he added.
MFIs are pivoting their strategies as they are now keen on grasping the financial service needs of entire households, which may encompass loans from moneylenders and secured loans against gold, rather than just focusing on individual customers.
Point of View
It is crucial to recognize the pivotal role of Microfinance Institutions in addressing the financial needs of underserved populations. With a commitment from the government and support from organizations like NABARD, MFIs are positioned to make a lasting impact on financial inclusion. This approach not only empowers individuals but also strengthens the economy as a whole.
NationPress
13/11/2025
Frequently Asked Questions
What are Microfinance Institutions (MFIs)?
Microfinance Institutions (MFIs) are organizations that provide financial services to low-income individuals and communities, often lacking access to traditional banking.
How do MFIs contribute to financial inclusion?
MFIs help underserved populations secure formal credit, empowering them to engage in income-generating activities and improve their financial stability.
What is the government's role in supporting MFIs?
The government is committed to enhancing the capabilities of MFIs through supportive policies and frameworks aimed at promoting financial inclusion.
Who primarily benefits from MFIs?
Approximately 95% of MFI clients are women, highlighting the institutions' crucial role in supporting female entrepreneurs and low-income households.
What trends are MFIs embracing?
MFIs are shifting towards a customer insights-led approach, focusing on understanding the broader financial needs of households rather than just individual clients.
