‘‘The Poor stay poor, not because they are lazy but because they have no access to capital.” – Laureate Milton Friedman

Introduction to Microfinance

Microfinance (erstwhile microcredit) is a financial service offering loans, savings, and insurance to entrepreneurs and small enterprises that lack proper access to banks or investors. The primary objective of microfinance is to make available to the underserved individuals (since they lack the credit or resources to subscribe to a regular bank loan) the required money so as to invest in their nascent business projects.

According to Juan Somavia, (Director General, International Labour Organization, Geneva), “microcredit plays a critical role in empowering women, helps deliver newfound respect, independence, and participation for women in their communities and in their households.”

In India, “The National Microfinance Taskforce, 1999” has defined microfinance as “provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards.”

Introduction to Financial Inclusion

Financial inclusion, in its broader sense, refers to universal access to a variety of financial services (including banking, insurance, or equity products) at a rational cost. Access to financial services is central to the process of socioeconomic empowerment of the financially marginalised segment(s) of the society. Initiatives meant to augment access to financial services by eliminating shortcomings wherever markets lack momentum are necessary. Doing so would lead to elevated livelihood avenues and productivity in the country whilst also facilitating the assimilation of people into the socioeconomic mainstream.

Dr. C. Rangarajan (Chairman, Committee on Financial Inclusion) defines financial inclusion as “the process of assuring access to financial services and aptly enough credit according to the needs of the susceptible groups of the society at a reasonable cost.”

Financial Inclusion via Microfinance

Scholarly research (Philip Mader and Sophia Sabrow, 2015) suggests that the activities directed towards realising financial inclusion should have as a mission (apart from the emphasis on savings, money transfer, and insurance services) the formation of an adequate credit support system for the ubiquitous financial needs (viz. housing, water, or consumption) of the poor population. The advent of microfinance has exhibited reasonable creditworthiness of the poor. It has been realised that by way of regular savings and timely loan repayments, the poor people have succeeded in lessening the suffering erstwhile faced by the households surviving at minimal income levels. This has also eased their consumption patterns, whilst making possible the employment and microenterprise activities of this section of the society.

Microfinance is perceived as a financial market resolution to the social ailments of poverty as it promises poverty mitigation by way of a market and cost-centric approach, thereby, also serving the objectives of international development policies. Savings assist poor households in dealing with cash flows, ease their consumption, and develop running capital. Access to formal savings options availed via systematic microfinance solutions can boost household welfare. Also, comprehending the precise needs of the underserved sections of the society and how financial services can be aligned to optimally cater to them is crucial. So, placing the interests of this marginalised sect of the society at the core of the financial inclusion agenda is a prerequisite. In our society, the unskilled form of the labour force is the one working in such activities requiring limited skills, consequently earning them lower wages. Such labourers have limited education (high school, diploma, or totally illiteracy). They end up working in construction work, domestic help, security work, laundry, taxi driving, etc.

The Indian Scenario of Microfinance & Financial Inclusion

In India, the advent of penetrating the financial services’ inclusion has strengthened various microeconomic indicators (micro-entrepreneurship, small business, household consumption, and socioeconomic security). A number of government and private financial institutions in India are actively contributing to strengthening the financials of the underserved (owing to cumbersome credit loaning processes followed by regular banks citing high-risk concerns) section (low-income group) of Indian society. India accounts for over 233 million underserved or financially excluded people (as reported in “MFIs ‘are key’ to financial inclusion,” Business Line, 12 June 2016). As per the Indian Census (2011) data, there are over 102 million households without access to banking facilities. Notably, as of now, there are around 49 prominent microfinance institutions (MFIs) in India (with a total of 223 MFIs in Tier I, II, & III cities, across 21 States & UTs – per the report published by Sa-Dhan), whereas the microfinance industry reported a 50% (year-on-year) growth in the second quarter of 2018-2019. The microfinance sector has transcended beyond the initial goals of operating merely as a non-profit endeavour by emerging now as a requisite apparatus for realising optimal financial inclusion in India. It’s also crucial to acknowledge that among those in our country experiencing considerable financial marginalisation, the faction that faces exclusion the most is that of the Indian women. The illiterate, deprived and unemployed women generally are kept away from accessing loans from lending institutions. However, now, with the dawn of MFIs in India, as the dynamics of credit lending have experienced a paradigm shift, the credit is provided to the underserved based on their skills and capacity, as against relying on the earlier benchmarks of assets used by banks. As we move forward, it’s vital to realise that the success of MFI sector relies largely on the assimilation of technology and human interface in discharging financial credit solutions to the recipients.

 

BON: Timely Credit Finances for the Gig Economy

To optimally serve the specific financial needs of this crucial (gig-economy) segment of the society, we, at BON (one among the 13 shortlisted startups—out of a total of 200 contesting startups—poised to avail the benefits offered by the Maharashtra Government under the aegis of its FinTech Accelerator Program), are committed to facilitate financial empowerment and technological advancement. We do this by offering the revolutionary BON Card with an expense monitoring app—a “Work Now, Pay Later” payment feature for the gig economy workers across India and SE Asia. The Logistics, E-Commerce, Hyperlocal, and 2-sided marketplaces’ merchants can issue BON Cards to give power to their workforce.

For BON Card: 022-39698234 or contact@bonfleet.com