Microfinance in India

India has always been a very agrarian focused culture, with approximately 450 million people are currently in need of funds. Microfinance encompasses many different types of services such as credit, savings, insurance, remittance and pensions. Microfinance initiatives primarily focus on microcredit services because rural towns are heavily reliant on credit for a wide range of needs for example engage in economic activity, consumption needs, mitigate income shocks, increase savings and improve self-empowerment. In many microfinance areas, women comprise most of the groups because they are seen as more reliable with funds. India’s microfinance evolution can be broken down into 4 distinct phases. India’s microfinance movement started in 1903 through its credit cooperative movement. Before this movement, the poor often relied on the village’s money lender whenever they needed access to cash. Money lenders were notorious for high interest rates; they would charge approximately 3%-8% per month on loans. Although money lenders would prey on farmer, they had no other choice to use them because they could not get access to banks. Farmers’ earnings were directly related to how well their crops fared. High interest rates coupled with possible years of famine made repayment impossible caused agrarians to riot. In 1904, the Co-operative Society Act extended credit to Indian villages under government sponsorship as an alternative to traditional money lenders. Cooperatives were the only option to most rural areas because of its spatial spread and penetration in remote areas. During this phase commercial banks did not venture into rural areas because they were in the private sector and had no incentive to extend their outreach to rural areas. However they became unreliable because of NPA inefficiencies and they lacked professionalism. Credit cooperatives had trouble distributing funds due to frozen assets from overdue repayments. Therefore rural areas stopped using