Microfinance originated in India when the late former Prime Minister Smt. Indira Gandhi nationalized the banks in the year 1969, to see that 1% of the profit of these banks goes to the poor towards their micro enterprises. This she planned that bank should facilitate her 20 point programme to fight poverty among the poor and she called it “Garibi Hatao”. She envisaged that credit to the poor should be an instrument of social change towards social justice and empowerment both among the urban and rural poorer households. 

 

 

For 10 years and more the nationalized banks were bubbling with activities visiting the poorer households on their own to help the poorest of the poor voluntarily. However, this short lived enthusiasm of the bankers did not last long, as it was a compulsory top down process of governance only in the form and not in spirit. There is also another reason that this microfinance activity to nationalize banks did not last long as many politicians organized 'loan melas' in their own constituencies and such loan melas or festivals have ended up in huge losses to the banks. Soon the banks were fed up with such huge losses and had been the main reason that drove the poor away from the bank. Therefore the need arose for alternate options for those engaged in microfinance activities to initiate an informal and flexible microfinance process for helping the poor through group dynamics in the poorer neighbourhoods. 

 

As the failure of formal sector economy consisting of small and medium industries lags behind, the informal economy supported by micro finance becomes the real source of employment options for many poor and vulnerable entrepreneurs. The informal economy has currently become a major source of employment in developing countries it is a survival mechanism for over 90% of worlds working population.

 

 

Despite, the significant role the micro-credit ventures have played, it has seldom caught the attention of National Governments and others, to multiply the same to help increase its outreach to larger number of poor people. On the contrary, government and donors have favoured only the successful models, thrust their resources to such micro finance institutions who have scaled up from providing petty loans to assisting larger efforts of small industries. The responsibility to reach the poorest of the poor has therefore been left to the unregulated options of informal self-help groups and NGOs who have tried their best to do so.  Its outreach has been expanded by NGOs and civil society initiatives tremendously. 

 

Today microfinance institutions that are most civil society initiatives have been gaining in popularity among the unbanked population as it is flexible and easy to operate. The poor have demonstrated not only their desire for micro-loans but also have become credit worthy. This proves there is a great demand, and that it's viable. Even if it does not reduce poverty immediately mere access to finance is a workable solution to make the poor become entrepreneur. 

 

The experience of many micro finance institutions so far strongly reveal that it is possible for these institutions to reach the goal of serving people in extreme poverty without asking for collateral and at the time without having to sacrifice their profitability. However it is equally disheartening to see that MFIs are designing the programme of microfinance, keeping in mind only market principles of competitiveness and sustainability, even when designing the programme for the poorest clients. Therefore there is a great difference between the current practitioners unlike the pioneers to visualize the microfinance options are only to serve the poor and they should cut the transaction costs that is beyond the reach of the poor in several contexts. No doubt the micro-finance industry has had remarkable success in extending financial services to the poor as it has become a people's movement. But at the same time we cannot deny the fact that the industry has a long way to go and millions of low-income people remain unable to have access formal financial services. 

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