Sep 13, 2024
Introduction
One of the leading causes of poverty in developing countries like our India is the lack of access to leave-alone credit but also basic financial services for poor households. While traditional banks are playing their role in elevating the financial landscape of the country, the poor are still left behind. Microfinance institutions emerged with the sole aim of targeting financially backward people from the country’s rural parts and enabling them to receive financial services. But how do they reach these unbanked and underprivileged people in rural areas? How do the institutions evaluate these people? What is the criteria? What are the services offered? How are these different from banks? How do they work? How successful are these institutions in reaching the rural areas lacking traditional banking support? In this blog, we will discuss the answers to these questions and understand the role of microfinance institutions in elevating the quality of life for financially underprivileged rural population in India.
Challenges faced by Microfinance Institutions in reaching economically underserved people
Before understanding how Microfinance institutions like Chaitanya India reach the underserved population, let us look at the challenges faced by MFIs collectively across the country during the process.
- Communicating with the rural population in distant and remote villages is a significant hurdle for these institutions.
- Most of the rural areas lack internet connectivity, making it difficult to effectively manage the customer’s data, records, and financial transactions.
- Since most of the micro-loans and group loans are disbursed directly to the customers through cash, collecting the loan back in person becomes extremely difficult sometimes.
- Establishing trust among these communities is another challenge for MFIs, being non-governmental organizations.
- Plenty of non-repayment issues.
There are many risks associated with enabling financial services to these underserved people. Lack of proper documentation, collateral, and financial education are some of the key reasons why these people are not covered by traditional banking services.
Reaching unbanked and underprivileged people in rural areas
Microfinance institutions have been uniquely positioned in India’s financial landscape. These institutions might lack the manpower and resources that the traditional banks have, but they optimize existing resources, build networks, contact potential customers and reach underprivileged people.
- Partnerships
Partnerships are one of the most effective and efficient ways to reach financially poor households in rural areas. Microfinance institutions partner with other financial organizations sometimes locally and sometimes with other clients from India and internationally. Based on the requirements, to reach large groups of households they partner with existing or local small financial organizations. To serve the people with innovative and customized financial solutions they team up with international brands for funds.
- Establishing Local Branches
Microfinance institutions with credible resources and funds take a step further and establish their dedicated branches in particular regions. This is one of the most effective ways to not just reach the right people but also to serve them swiftly and effectively with immediate support for any kind of queries. MFIs consider various factors while establishing these branches including connectivity, accessibility, and profitability to maximise the reach to surrounding rural areas and facilitate seamless micro loans or other products.
- Group based approaches
In another scenario, microfinance institutions approach any existing groups in the respective rural area such as Self Help Groups and Joint Liability Groups. While SHGs usually depend on group members for financial assistance, for additional financial support people form JLG groups to take loans from these MFIs, like how we provide at Chaitanya India. By partnering with these groups, MFIs analyze their financial needs and support them with suitable products. These group-based approaches can significantly enhance outreach and reduce the risk for MFIs in the long run.
- Empowering women
The societal norms and regulations in the rural parts of India make it even more challenging for women to get financial assistance. This is one of the main reasons why many of the MFIs including Chaitanya, target women from rural parts of the country and offer them suitable financial support. MFIs are targeting some of these women and are leading them towards their journey of becoming entrepreneurs. MFIs collaborate with these groups led by women, understand their needs to develop financial products and expand lending operations, especially for women.
Conclusion
In conclusion, microfinance institutions play a critical role in addressing the financial needs of the unbanked and underprivileged rural population in India. Despite facing challenges such as communication barriers, lack of internet connectivity, and trust establishment, MFIs have developed effective strategies to reach these economically underserved communities. Through partnerships with local and international financial organizations, establishing dedicated branches in rural areas, and leveraging group-based approaches, MFIs have successfully provided financial services to those in need. By empowering women and catering to their specific financial needs, MFIs contribute to female entrepreneurs’ economic empowerment in rural India.
In this blog, we’ve explored the crucial role of microfinance institutions in reaching underprivileged rural areas, and Chaitanya stands out as a prime example. Chaitanya, a fast-growing microfinance company in India, is empowering women in rural India through strategic partnerships, the establishment of local branches, and the use of group-based approaches to optimize resources for swift and effective service delivery. As they say, “If you educate a man you educate an individual, but if you educate a woman you educate a family, Chaitanya India also intends to impact the rural Indian communities with our humble financial assistance. By targeting women and customizing financial solutions, Chaitanya is committed to making a significant impact on the lives of underprivileged rural women, driving positive change and economic empowerment in rural communities.
