Issues/challenges faced by micro finance sector in India

Issues/challenges faced by micro finance sector in India

Micro finance being practiced as a tool to attack poverty the world over. The term “micro finance” could be defined as provision of thrift, credit and other financial services and product of very small amount to the poor in rural, semi rural or urban areas for enabling them to raise their income level and improving living standard.

ISSUES:-

1. SUSTAINABILITY: - MFIs model is comparatively costlier in terms of delivery of financial services. Cost of supervision of credit is high, the loan volumes and loan seize is low. MFIs pass on the higher cost of credit to their clients who are interest insensitive for small loans but may not be so as loan seize increase. So, high cost involved in MFIs Question arises on sustainability of small MFIs
2. LACK OF CAPITAL: - MFIs are facing paucity of owned funds. Presently, there is no reliable mechanism in the country for meeting the equity requirements of MFIs. Funds availability is necessary key for MFIs to operate but due to various obligations and regulation imposed by the government and banks MFIs are not getting funds easily from the banks.
3. LACK OF MODERN TECHNOLOGY: - MFIs have no modern technology to handle large number of data base. Each department like insurance department, HRD department, finance department, ICT department etc. of MFI handles large number of data base but efficient software is not available. Reason can be high cost. All MFIs facing the problem of multiple lending and they are trying to fulfill regulation announced by RBI but no one has strong software to to cope up this problem.
4. LACK OFGOOD MANAGEMENT: - Small MFIs have no effective management in middle level & upper middle level. Due to this operational function is not implementing effectively.
5. BORROWINGS: - earlier years, MFIs are now finding it relatively easier to raise loan funds from banks. They know very well about need of MFIs. Banks are trying to find exact risk about MFIs. They are trying to use right technology to assessment of right risk. So, they can make innovative & suitable product for MFIs.
6. INSURANCE IN MFIs. : - Some MFIs. are only use product of insurance for security of  portfolio. Clients do not get benefit of insurance. Claim ratio is high so premium of insurance is high. Small MFIs are facing problem to implement other life & general insurance product. Still, insurance companies are not making product as per need of MFIs. MFIs. have no right approach to find risk about prospects death clients. so, claim ratio is high. Many death clients are husband of clients. Many MFIs are using group term life insurance product. Some MFIs violate the regulation regarding group insurance & micro insurance of IRDA.

CHALLENGES:-

1. FROM CREDIT TO ENERPRISE: - MFIs always linked to the banks, how they can be induced to matured level of enterprises, how they can be induced to factor in livelihood diversification, how they can be increasing their access to the supply chain linkage to the capital market. So, MFIs are facing different type of problems, how they can be matured as good enterprise.
2. MIXING CHARITY WITH BUSINESS ACTIVITY: - To run a business activity a marginal profit is needed. In the absence of this no organization or institution will run but often micro finance business is connected with charity have problem arises on operational stages.
3. DIFFICULTY IN MEASURING THE SOCIAL PERFORMANCE OF MFIs: - there is no specific tool to measure the performance with proves that is working in positive direction and where it lack, what more initiative is needed.
4. LACK OF CUSTOMIZED SOLUTION FOR THE POOR PEPOLE: - Many poor and rural people are illiterate and not able to easily understand about the rule, policies, and features of products. Thus proper channel must be set up for the customer satisfaction and solution of problem.
5. DUAL RESPONSIBILITY OF MFIs TO BE FINANCIALLY SUSTAINABLE, SOUND AND DEVELOPMENT ORIENTED :

MFIs have dual responsibility to be financially sound and work for socioeconomic development of in rural, semi rural or urban areas.

6. HUMAN RESOURCE CHALLENGES IN MFIs: - Due to low salary, low growth rate, lack of resources, and lack of good human resource policies employee’ resignation rate is high. Lacuna of good employees in small MFIs. That effect on growth and operational functions of MFIs.
7. CHALLENGE REGARDING CLARITY OF REGULATION ABOUT MFIs: - Still, micro finance bill is pending. How to make clear regulation and policies about MFIs is a big challenge.

VARIOUS QUESTIONS ARISES REGARDING MFIS:-

a.      As borrower continues to borrowing from these institutions will income rises and poverty rate falls.

b.      To what extent the loan and saving programme eliminate the day to day uncertainty faces by the poor people? In daily life poorer faces various problems. Up to what extent it helps to overcome the problem.

c.       Is the very poor borrowers benefit from the well designed lending programme of the MFIs or not?

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