The real socio-economic impact of the microcredit in India (2007)
It was in Asia, and particularly in India, that the biggest campaign of micro credit was launched. Indeed, Asia alone accounts for more than 60% of "users" of micro credit. Moreover, India is a very poor country, found under the spotlight, given its current boom in the global marketplace.
During the 1990s, India had experienced a period of exceptional growth (7% per annum between 1994 and 1997), which has lifted many people out of poverty. However, today 35% of India's population or 350 million people still live below the poverty line. For over 35 years, the State has been encouraging banks to take part in social initiatives.
However, a lack of funds, an unfavorable policy environment and lack of interest from traditional banks towards micro finance, has prevented micro credit to grow rapidly. In India, 80% of the financial sector is controlled by the state. Can the micro credit have a positive impact on the development of the Indian subcontinent? To answer this question, this report begins by defining micro credit and its objectives. Then, it will study the case of three Indian women who have benefited from the initiative. Finally, it will show the limitations to the system.
The micro credit was "born" there thirty years ago with a group of researchers who found a new way to reduce poverty in the world.Their idea was to grant small loans, unsecured, to people living in extreme poverty. In practice, this means of financing allows these same people (always refused by traditional banks) to start or develop a business, a new activity, etc..
The person who implemented the micro credit is the economist Muhammad Yunus and has inspired mutual agricultural credit created in Europe in the 19th century. Yunus established the Grameen Bank, which grants micro loans almost all over the world, especially in Bangladesh (roughly 3 billion euros to over 2.4 million small entrepreneurs).
Micro-credit, although it is attractive in many respects, has its limits at the individual level as it can also have an effect at the national level. First micro-credit alone is not sufficient to create a micro business.Additional funds are needed and everyone is not able to start a business. Thus, loans are often attributed, not to the poorest, but to small producers, small traders who have no access to formal financial services.
Tags : micro credit; definition and objectives; limitations to the system; micro credit in India
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