“Microfinance is an economic development tool whose objective is to assist the poor to work their way out of poverty. It covers a range of services, which include, in addition to the provision of credit, many other services such as savings, insurance, money transfers, counseling etc”. This definition of microfinance is given by Malegam Committee – Sub-Committee of the Central Board of Directors, Reserve Bank of India.

Microfinance acts as an umbrella to the poverty-stricken and makes provision for credit availability to this sector through poverty focused Microfinance Institutions-MFIs. Microfinance promotes women entrepreneurship by providing loans to poor, to help them engage in productive activities and grow their tiny establishments. It gives people the means to fight against poverty and aims at poverty alleviation.

The Indian Microfinance Sector has witnessed a phenomenal growth over the last fifteen years. The quantum of credit made available to the poor and financially excluded members have gone past Rs 33,500 crore and number of clients benefitted crossed 33 million as on march 2014.NBFC-MFIs contribute 82% of both clients outreach and Outstanding Portfolio as per ‘Bharat Microfinance Report 2014’. The industry, in a way, is now well positioned for a makeover. The MFIs and their lenders have overcome the 2010 Andhra Pradesh crisis. The resilience of the sector could be gauged from the fact that it has survived many setbacks and renewed its growth story. Last three years witnessed the emergence of ‘client’ as the protagonist in all the major events concerning microfinance. Today, the industry is in better shape than ever before. MFIN data shows that over 27.9 million clients were provided micro credit during the quarter, a 23 per cent increase over the year-ago period. Funding to MFIs also grew 172 per cent. It is expected that by the end of the current financial year, the loan portfolio of MFIs would touch an all-time high.

The RBI’s regulatory framework for NBFC-MFIs, based on the Malegam panel’s report (2011), has also ensured stability of business. The renewed focus on financial inclusion, last mile connectivity and widespread use of credit bureau reports are the strengths of micro-lenders.

Multiple instruments; code of conduct, client protection principles are being used to reinforce the idea of responsible microfinance. Thanks to the regulatory guidelines issued by the Reserve Bank of India, the sector has begun to operate in an orderly manner.

Microfinance transparency, a global initiative to promote transparency in microfinance operations, has reported that Indian MFIs are now more focused on the poor, carry lower interest rate and provide credit plus services.