Micro Credit

The Reserve Bank of India defines Micro Credit as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. The institutions that provide these facilities are called Micro credit Institutions.
In terms of amount of money targets- loans of very small amount not exceeding Rs. 50,000 per borrower provided by the banks either directly or indirectly through SHG/JLG mechanism comes under the definition of Micro credit.
Reserve bank of India encourages the commercial banks to expand the coverage of micro finance in India. A pilot project for purveying micro credit by linking Self-Help Groups (SHGs) with banks was launched by NABARD in 1991-92. RBI had then advised commercial banks to actively participate in this linkage programme. The scheme has since been extended to RRBs and co-operative banks.
Government of India permits FDI in ‘Micro Credit/Rural Credit’. The Micro Credit/Rural Credit’ comes under non-banking financial company (NBFC) activities. NBFCs carrying on the business of a FI prior to the coming into force of RBI Amendment Act 1997 are eligible for providing microcredit provided their CoR (Certificate of Registration) has not been cancelled by the RBI. The NBFCs are subject to Sec. 25 of Companies Act.
Following are the providers of Micro Credit in India:
  1. Domestic Commercial Banks: Public Sector Banks; Private Sector Banks & Local Area Banks
  2. Regional Rural Banks
  3. Co-operative Banks
  4. Co-operative Societies
  5. Registered NBFCs
  6. Unregistered NBFCs
  7. Other providers like Societies, Trusts, etc.

RBI does not specify any targets to be achieved in the Micro Credit. The banks have been advised to develop their own models and prescribe their own criteria for selection of micro credit organizations.
Banks are free to choose intermediaries, suitable branches, pockets, areas for implementation of microcredit programme. They are also free to devise appropriate lending and saving products. However banks have been instructed to include micro credit, in their branch, block and district & state credit plans. This has to be reviewed on quarterly basis.

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