The financial services provided to people with low income are known as microfinance. It provides them permanent access to affordable and high quality financial services. It includes income and asses building activities to protect them from the risks by stabilizing their consumption. The term microfinance evolved to include insurance, savings, remittances and payments. Initially it was linked to very small loans with small or no collateral to unsalaried people. Various financial services and microfinance institutions have worked hard to develop methods to deliver products according to the needs of their target customers. Various customized microfinance methodologies and products have been introduced by the financial service providers to improve the condition of their clients.

Understanding financial inclusion

Provision of more financial products to serve more people at lower cost is the main goal of financial inclusion. It must include a board comprising of financial institutions, low income people and organized performers of financial market including banks and other finance and insurance providers. Financial inclusion has improved the financial condition of low income people by using various financial products to provide them loans to make them micro-entrepreneurs. It not only helps them to manage their complex financial condition but also makes their future safe.

Probable clients of microfinance

  • Self employed low income people who do not have access to banks and financial institutions
  • People living in rural areas and running street stalls and small stores
  • People creating and selling items in their homes
  • Small scale farmers who process or trade goods and crops
  • People including women below poverty line or earning not more than $1.25 per day

Kinds of institutions delivering financial services to poor clients

A wide range of growing organizations are working hard to reach the poor people requiring various types of financial help including insurance, saving, credit services and transfers etc. These institutions may include credit unions, cooperative and microfinance networks and banks etc. along with traditional financers.

Financial services used by poor people

Poor people want to use a wide variety of financial services due to their irregular income. Financial services can help them by financing them for income generating activities along with managing their emergency stocks. Main problem the supporters of financial inclusion movement are facing in providing the benefit of full range of financial products and services to the poor people is that they are used to getting financial help at very high rate from unsecured sources which make their situation more insecure.

Introduction to mobile banking

The financial transaction made through mobile devices is known as mobile banking. Poor people can enjoy the benefit of financial inclusion at lower cost through mobile banking. Rapid expansion in mobile technologies has enabled mobile banking to improve the access of poor people to the financial services. All the financial institutions, government and non-government, are accepting its importance. Most of the banks have started making policies that will reduce the cost of cash handling. Researchers are studying the successes and failures of mobile banking to support it more effectively all over the world.

Reasons of high interest rate in microfinance loans than traditional loans

  • Due to lack of collateral and employment history
  • To determine the creditworthiness of the borrower
  • Cost of representatives sent to visit clients in remote areas
  • Cost of disbursement and collection of loans
  • Cost of availability of the service

Many technological and business developments are creating opportunities to reduce these costs to reduce the burden on clients in future.

Role of government to support the efforts of financial inclusion

Government can support financial inclusion in three ways:

  1. Setting regulatory rules for balancing the financial inclusion drive
  2. Promotion of private sector investors for the expansion of financial services
  3. Improving transaction volume of government-to-people payments through electronic deposits

Consumer protective measures for clients

Three main protective measures that can be used for poor clients include:

  1. Ensure the fair treatment to the customers Consistent improvement in standards and code of conductMake customers responsible by informing them adequately
  2. Tools to measure the impact of efforts of financial inclusion
  3. Assessment of a set of indicators, Randomized control trials or RCTs and Quasi-experimental assessments are some of the simple tools to measure the impact of financial inclusion efforts. But they have many positive and negative features to be cared while using them.