Banky’s Understanding: Microfinance consists of micro-savings, micro-credit, micro-insurance, and micro-pensions. It provides small financial services to poor/low-income households to help them escape poverty, increase income, and improve living standards. Delivered through informal channels (moneylenders) and formal channels (banks, SHGs, JLGs, MFIs). The 2022 RBI framework defines microfinance loans as collateral-free loans to households with annual income up to ₹3 lakh.

Banky’s Understanding: Members come together voluntarily to save small amounts regularly to a common fund, then meet emergency needs from this fund. When internal funds aren’t enough, SHGs borrow from banks. Benefits: reduces transaction cost for both lender and borrower, group guarantee replaces collateral, cheaper to deal with groups than individuals, most SHGs have women members. SHGs use microfinance for survival needs, income-generating activities, working capital, and micro-enterprises.

Banky’s Understanding: Formally launched by NABARD in 1992 as a pilot with 500 SHGs. By March 1993, ~600 SHGs were financed. In 1996, RBI included SHG financing as mainstream PSL activity. This is the foundation of India’s modern microfinance movement. NABARD refinances SHG loans 100%. Savings-linked loans: ratio of 1:1 to 1:4 (for matured SHGs, beyond 1:4 at bank’s discretion). No collateral required. Loan is in SHG’s name — SHG decides loan purposes for members.

Banky’s Understanding: Model I: NABARD → Bank → SHG (direct). Banks form AND finance SHGs. No NGO involved. Model II: NABARD → Bank → SHG (NGO facilitates). NGOs promote SHGs and link them with banks. Banks directly finance SHGs. MOST POPULAR model — majority of SHGs financed here. Model III: NABARD → Bank → NGO → SHG. NGO acts as financial intermediary. Funds flow from bank to NGO, then NGO finances SHGs.

Banky’s Understanding: A group of 4-10 people from same village, homogenous background, who come together for availing bank loans without collateral. Members mutually guarantee each other’s loans. JLGs serve: small/marginal farmers, tenant farmers, oral lessees, share croppers, micro-entrepreneurs, artisans. JLG members may also be SHG members. NABARD refinances JLG loans 100%. Banks can use own assessment techniques for JLG lending.

Banky’s Understanding: (1) Not-for-profit MFIs: Societies (Societies Registration Act 1860), Trusts (Indian Trust Act 1882), Section 8 companies (Companies Act 2013). (2) Mutual benefit MFIs: Cooperatives and Mutually Aided Cooperative Societies. (3) For-profit MFIs (NBFC-MFIs): Registered under Companies Act, regulated by RBI. This is the LARGEST category — most microfinance in India flows through NBFC-MFIs.

Banky’s Understanding: In 2010, MFI lending in Andhra Pradesh escalated exponentially → over-borrowing → coercive recovery → 30 suicides by women borrowers in 45 days. RBI appointed Y.H. Malegam Committee (January 2011 report). Key recommendations: create NBFC-MFI category, define ‘qualifying assets,’ prescribe margin cap and interest rate ceiling, mandate transparency, address multiple lending/over-borrowing, establish grievance redressal, impose prudential norms.

Banky’s Understanding: MYRADA (Mysore Resettlement and Development Authority): Pioneer of SHG concept in India. In 1984-85, MYRADA started linking SHGs with banks — marking the beginning of India’s modern microfinance movement. Grameen Bank: Founded by Muhammad Yunus in Bangladesh — the global model for microfinance. Grameen Bank Model inspired microfinance worldwide. The Indian SHG model evolved differently but shares the same principle: group lending to the poor.