Microfinance and rural credit in India

Abstract

Microfinance has emerged as a crucial instrument for promoting financial inclusion, alleviating rural poverty and empowering marginalized communities in India. Rural credit has historically been dominated by informal moneylenders, but microfinance institutions (MFIs), self-help groups (SHGs), and cooperative banks have transformed access to credit in rural areas.
Microfinance refers to the provision of financial services such as small loans (microcredit), savings, insurance, and money transfers to individuals and small businesses who lack access to traditional banking services. It is specifically designed for low-income households, informal workers, and micro-entrepreneurs who are excluded from the formal financial system due to lack of collateral, low income, or inadequate credit history.
As per the data from Credit Information Companies, which includes banks, small finance banks (SFBs), non-banking financial companies (NBFCs), NBFC-MFIs, and other lenders, shows that the Self-Help Group (SHG) Bank linkage programme registered positive growth in 2024-25, with overall outstanding reaching ₹3.04 lakh crore for 84.94 lakh SHGs. There were around 143.3 lakh SHGs with 17.1 crore households linked to savings under the SHG Bank linkage programme,( The Bharat Microfinance Report 2025)
This paper examines the evolution of microfinance in India, its significance, issues and future.