Building Social Capital Through Micro-Finance: A Perspective on the Growth of Micro-Finance Sector with Special Reference to India

This article is based on the premise that poverty has its own culture. Social system and subsystems of this culture are built on exploitation. The rich are exploiting the poor by putting them into a debt-trap of money-lending system. This system exists everywhere in the world wherever poverty exists. The poor people need money for their survival and as a result of it they become the part of the vicious circle of poverty where at one time they approach to the moneylenders and the other times to formal financial institutions. Micro-finance is an intervention based on social intermediation in which poor people can mobilize their savings, link it with credit and finally become self-employed. It results in building social capital. In the present paper an attempt has been made to understand the growth of micro-finance at global level in general and in India in particular and how micro-finance sector can contribute significantly for building social capital. From the review of literature on micro-finance, it has been revealed that there is a high demand of micro-finance all over the world. Moreover, micro-finance is not limited to rural society or developing countries only; it is equally applicable to urban society and developed countries as well. In India, the need for microfinance is higher as the demand for credit to start micro-enterprises by the poor people could not be met by the institutional initiatives of rural finance up to large scale. Due to the failure of percolation theory of social development, poor people are highly dependent on noninstitutional sources of credit. Economic weaknesses of the Jajmani System also gave way to increased non-institutional sources of credit. It all happened despite the high opportunities of employment generation that lie in agriculture sector and RNFS (rural non-farm sector). Growth of micro-finance in India has been in response to the failure of institutional initiatives of rural credit and exploitation attached with informal system of credit. Learning from the success of Grameen Bank Bangladesh, many NGOs (non-government organizations) in India came forward to promote micro-finance. At present about 1000 NGOs are implementing micro-finance projects in India. Some of them are leading MFIs (micro-finance institutions) playing the role of social intermediation and building social intermediation. These MFIs have adopted different strategies of people’s livelihood through micro-finance delivery. These strategies have also been discussed in this paper. 1.0 Defining Micro-Finance as a Concept and Process Before we understand the concept of micro-finance, it would be worthwhile to understand the term micro-credit as the two terms are closely related to each other. Poor people need microcredit for various and different purposes. It may be to meet the major household expenses,