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Microfinance is not a financial system but a tool to alleviate poverty from the country and bring social change. Analyse.

Topic: Inclusive growth and issues arising from it.

4. Microfinance is not a financial system but a tool to alleviate poverty from the country and bring social change. Analyse. (250 words)

Difficulty level: Moderate

Reference: The Hindu

Why the question:

RBI has sought to undertake a comprehensive review of the microfinance sector again, after 10 years, to better align the regulatory framework with the sector’s current realities.

Key Demand of the question:  

To understand the nature and functioning of microfinance industry and its role in eradicating poverty.

Directive word: 

Analyse – When asked to analyse, you must examine methodically the structure or nature of the topic by separating it into component parts and present them in a summary.

Structure of the answer:

Introduction: 

Begin by mentioning the credit lending structure of microfinance industry.

Body:

First, describe the lack of formal credit lending structures to the poor for initiating some business or investment activity and with no collateral.

Next, highlight the role of microfinance sector in empowering women and help the poor to begin an income generating activity and take up small entrepreneurial ventures through small capital financing.

Next, mention few successful models of microfinancing in India and abroad and a few takeaways from them.

Conclusion:

Conclude by mentioning that the grass-root level approach of financing is a much needed strategy to alleviate poverty and promote women empowerment when a major section of our population is is the poor.