'Micro finance yet to gather momentum'

Provision of financial services to the poor through micro finance has seen significant growth over the last few years in India.

However, more than 300 million people in India are still under-served, believe industry representatives, making it imperative for micro finance to gather momentum and reach.

Addressing a seminar on micro finance, Ramesh Arunachalam, director, MicroSave India, said, "Micro finance delivers financial services like credit, savings, insurance, leasing and remittances to the bottom-of-the-pyramid clients. In the last few years, there has been an increase in the number of stakeholders for this sector and innovative micro finance products and services have been launched as well."

"While Andhra Pradesh and Tamil Nadu continue to be the leaders with regard to coverage in terms of micro finance, large parts of the country like Madhya Pradesh, Uttar Pradesh, Bihar and the northeast regions continue to be under-served. More than 300 million people in the country continue to source finance from traditional sources like money lenders and landlords," Arunachalam said, adding that at some places like Dharavi (Mumbai) and Bundelkhand, the interest rates were as high as over 300 per cent respectively.

"The challenges, therefore, are to reach a critical scale, reach out to the urban poor as well as the rural poor, reduce the transaction costs, use the services of professionals and adopt technology like e-banking," Arunachalam said.

According to Annie Duflo, research coordinator, Centre for Micro Finance Research, Institute for Financial Management and Research, although 31 per cent of the total deposit accounts and 43 per cent of the total credit accounts are in rural India, the success rate with regard to providing financial services to the poor has not been as high as hoped.

"While the demand for micro finance is estimated to be Rs 45,000 crore per year, the amount disbursed is around Rs 3,900 crore. There are, therefore, large demand-supply gaps that need to be filled," she added.