Need of Interest-free Microfinance Institutions


India's GDP ranks among the top 15 economies of the world. However, around 300 million people or about 60 million households, are living below the poverty line. It is further estimated that of these households, only about 20 percent have access to credit from the formal sector.

Additionally, the segment of the rural population above the poverty line but not rich enough to be of interest to the formal financial institutions also does not have good access to the formal financial intermediary services, including savings services.

The annualized credit usage of all poor families (rural and urban) is estimated at over Rs. 45,000 crores, of which some 80 percent is met by informal sources.

Microfinance is emerging as an instrument to address poverty in the new economy. However, the present practices of micro- finance are based on interest-based lending, which varies from 30% to 150% per annum besides other maladies involved in Self Help Group (SHG) formation of specific sex group.

Interest-free Microfinance Institutions have ample opportunities in the present situation to intervene in the economy of low income group to bring a positive socio-economic change. The basic challenge is to launch marketable and ethical & socially responsible products. It is also required to establish capacity building centers, monitoring and auditing agency, survey and research cell besides sustained advocacy efforts at the governmental level for interest-free cooperatives. SAHULAT Microfinance Society has taken up the task to meet the challenge.