The study focuses on Microfinance and its financial inclusivity in India. Whether microfinance is success of failure in India, can it be used as a means of reaching to poor. What is the impact of current liquidity crunch on microfinance, can it be used as a mean of providing income to poor people.

Microfinance is often defined as financial services for poor and low-income clients. Micro Finance Institutions (MFIs) are providers of very small loans to unsalaried borrowers taking little and no collateral. These institutions commonly tend to use new methods developed over the last 30 years, these methods includes lending and liability, pre-loan saving requirements, gradually increasing loan sizes and an implicit guarantee to ready access to future loans if present loans are repaid fully. The microfinance industry in the country has over 2500 micro finance providers in the form of trusts, societies, cooperative and NBFCs.

Poverty is multi-dimensional. By providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women, who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.

The poor already save in ways that we may not consider as "normal" savings--- investing in assets, for example, that can be easily exchanged to cash in the future (gold jewelry, domestic animals, building materials, etc.). After all, they face the same series of sudden demands for cash we all face: illness, school fees, need to expand the dwelling, burial, weddings.

            These informal ways that people save are not without their problems. It is hard to cut off one leg of a goat that represents a family's savings mechanism when the sudden need for a small amount of cash arises. Or, if a poor woman has loaned her "saved" funds to a family member in order to keep them safe from theft (since the alternative would be to keep the funds stored under her mattress), these may not be readily available when the woman needs them. The poor need savings that are both safe and liquid. They care less about the interest rates that they can earn on the savings, since they are not used to saving in financial instruments and they place such a high premium on having savings readily available to meet emergency needs and accumulate assets.

Poor people use savings for a wide range of purposes—from taking advantage of business opportunities to accumulating assets to protecting against a variety of risks. They have a variety of cash requirements for events like the marriage and education of their children; structural risks like macroeconomic fluctuations and seasonal variations in cash needs and availability; and crises like theft, fire, damage, accidents, and death of a family member. The less predictable the opportunity or risk, the more difficult it is for the poor to manage without some sort of savings.

Poor value security above all other considerations. Other priorities include convenient locations and operating hours, flexible products, helpful and friendly staff, confidentiality, and a decent return (although this last feature is less important to the smallest depositors). Appropriate products encompass both highly liquid accounts that allow for frequent, small deposits and withdrawals, combined with time-bound accounts that allow people to save for specific objectives (school fees, weddings, etc.).

Microfinance products such as savings accounts, microcredit loans (usually $50 to $150), and health insurance empower the poor to lift themselves out of poverty. Through microfinance, they can secure better nutrition, education, healthcare and housing for their families.

Microfinance success or failure

Micro-finance programs have given women and men access to savings and credit. Microfinance institutions and self help groups in India are playing crucial role to help poor people.

Some of Microfinance institutions in India are 'Arman India', 'Arohan', 'Asmitha Microfinance', 'Bandhan Microfinance', 'Basix Microfinance', 'Janalakshmi', 'Moksha Yug', 'Saadhana', 'Samridhi Microfinace', 'Sarvodaya Nano Finance', 'Share Microfinace','SKS India', 'Spandana India' and Self help groups are 'SKDRPD India',       'Aadarsh Welfare Society'.

Microfinance institutions come in all sorts of shapes and sizes, but the main ones plying their trade in rural India are Self-Help Groups (SHGs) and for-profit MFIs. SHGs—numbering 3.4 million and servicing 45 million poor—are groups of up to 20 women who borrow directly from banks at a 12 per cent rate and then lend the money internally to members with additional percentage points tacked on. Interest income earned on each loan goes into a savings pool. In about five years, each individual from the group has a nice little nest egg of around Rs 25,000 to spend as they like. For profit MFIs like SKS and Spandana—only 25 of which serve 14 million people, but are the fastest growing outfits today in microfinance—have a different approach. They loan out money using the Grameen model, within groups of five women or so—but the loans are to individuals. The group exists as a collective guarantee for the loan and if someone defaults, the rest of the members have to come up with the cash. A staggering 800 million of India's poor are starved of formal credit and MFIs can be a godsend to their poor clients who use this cash injection to try and transform themselves into successful minientrepreneurs by rearing buffalos or selling vegetables and thereby improving the quality of their lives. Without them, the only alternative is to sell one's pound of flesh to the money lender, who is only too happy to give out funds that command interest rates that range from 100 per cent to a mind-boggling 5,000 per cent, depending on the nature of the loan.

There is evidence of significant potential for micro-finance to enable women to challenge and change gender inequalities at all levels if there is a strategic gender focus. There have also been many important recent innovations in products and services to enable women to better benefit. Nevertheless benefits cannot be assumed and even financially sustainable micro-finance if it is gender blind may seriously disempowering for women and increase inequality. Many of the strategies promoted for financial sustainability may exacerbate the negative impacts of debt, because of overpaid expansion, rigid product design inappropriate to women's economic activities, cutting of necessary support services and lack of attention to local economic contexts.

Challenges currently faced by MFIs

The current challenges are in the form of "funds" – both capital and funds for on lending. Retail participation in the capital structure requires listing on the stock exchange, for smooth operations regular funding from banks and financial institutions is critical. Along with the funding, human capital and technology are the main area of concern.

There is less effect of the global financial crisis on the poor, mainly because micro enterprises are not dependent on global consumption patterns; "economy of poor is decoupled from the global crisis", but the surplus generated by micro enterprises has come down. Along with this as the liquidity of large banks diminishes, it directly affects the ability of MFIs to give loans to their customers. When financial crisis coincides with food and oil price fluctuation; which leads to increase in the cost of inventories for the business and basic necessities of the family, there was increase in the demand for micro loans.

Inflationary situations affect more to poor people, since there is increase in the prices has more impact on poor families. This leads to more demand for the micro loans, because of less funds with banks there is less supply for the micro loans and more interest rate though the amount is very less.

According to a report called "Maturing of Indian Microfinance" by EDA Rural Systems and numbers published by the World Bank, the current estimated market for microcredit in India is Rs2,400bn. This is based on a calculation that there are 150 million poor household in the country (as per World Bank statistics for India) with an average credit demand on Rs20,000 per household. The credit demand is adjusted with a 20% upside for the urban poor households.

With the high inflation in the economy and global crisis, the overall requirement of the micro credit in the underserved low-income segment has gone up substantially. This is due to increase in costs of inputs and also an increase in overall volumes for the products manufactured by microfinance clients.

Microfinance has grown significantly in India and worldwide from last 5-6 years.

Microfinance is playing very important role for the development of poor, though there are some negative impact, like too much loan is given without any collateral, there are situations where MFIs start competing with each others, loan is given to more people for the same purpose without understanding their business plan e.g. many retail shops in same village will not help the purpose of microfinance i.e. to bring poor people above poverty line, again many times loans are not given to poor people only.

Regulations should be tightening so that only poor and needy people will be benefited by microfinance. 

 Conclusion

Microfinance is very successful India, to help poor people. Many MFIs and Self help groups are working in India and their customer base is also increasing year on year. Microfinance is helping poor people to fight against many aspects of poverty.  Though microfinance is a failed in some cases it has successfully allowed poor people to lift themselves out of poverty in many parts of country.

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