health care, and empowering people to make the choices that best serve their needs ”. although microfinance cannot be seen as a panacea for poverty reduction, when properly harnessed, it can make sustainable contributions through financial investment leading to the empowerment of people, which in turn promotes confidence and self - esteem, particularly for women. more importantly, the global experience with microfinance has shown that even poor are creditworthy. studies have shown that microfinance plays three critical roles in development. firstly, it enables the very poor households to meet their most basic needs and protect / hedge against risks. secondly, concomitantly it is associated with improvements in households ’ economic welfare. thirdly, by supporting women ’ s economic participation it helps to empower women and promote gender equity. bis central bankers ’ speeches i. microfinance and india inclusive growth always received special emphasis in the indian policy making. government of india and the reserve bank of india have taken several initiatives to expand access to financial systems to the poor. some of the salient measures are nationalisation of banks, prescription of priority sector lending, differential interest rate schemes for the weaker sections, development of credit institutions such as regional rural banks, etc. despite the policy efforts, gap remains in the availability of financial services in rural areas. the dependence of the rural poor on money lenders continues, especially for meeting emergent requirements. such dependence is more pronounced in the case of marginal farmers, agricultural labourers, petty traders and rural artisans belonging to socially and economically backward classes and tribes whose capacity to save is too small. it is in this backdrop that microfinance emerged in india. the self - help group ( shg ) - bank linkage program ( sblp ) which was launched in 1992 on a pilot basis soon grew significantly. as per the latest estimates, shgs enable 97 million poor households ’ access to sustainable financial services from the banking system and have an outstanding institutional credit exceeding rs. 31, 200 crore as at the end march 2011. sblp is considered to be the fastest growing microfinance initiative in the world. the other model of microfinance, i. e. mfi model comprising of various entities, such as, non - banking financial companies ( nbfcs ), non - governmental organisations ( ngos ), trusts, cooperatives, etc. has also been growing significantly in the recent years. microfinance - both sblp and the mfi sector - has posted an impressive growth

among them, which may lead to delays in sanction, double financing, etc. the building up, and sharing, of credit information will help in enhancing synergies among the various institutions and also ensure avoidance of multiple financing and consequent over - indebtedness. in this context, let me add that as per credit information companies ( regulation ) act, 2005, nbfcs, as credit institutions, are required to be members of at least one credit information company ( cic ) ( currently there are four cics ). what is important is that credit data regarding all the borrowers should be furnished to the concerned cic accurately and timely and full use should be made of the database of cics while extending credit, to guard against adverse selection and over indebtedness. diversification it was observed that mfis found a few geographies more profitable than others and against conventional wisdom which advocates diversification, ran in droves to the same geographies with southern region showing significant concentration of shgs and mfis. excessive proliferation of entities in a few regions, led to immense, and, sometimes, unhealthy competition leading to perverse practices. it is now comforting to see that, learning from the recent episode, the mfis are reorganising themselves and are spreading into, hitherto, untapped regions. diversification helps not only mfis in withstanding any region specific shocks but also help customers at large, by spreading the microfinance across the country. improvising the business model – reducing costs microfinance is a labour intensive sector involving significant delivery costs. while the entities could build these costs into their services and charge the customer, which many in fact did, the more efficient way of protecting or increasing one ’ s margins is reducing the operational costs by enhancing efficiency and leveraging technology. mfis should not pass on their operational inefficiencies to clients in the form of prices that are far higher than they need to be. considering the profile of the borrowers who are poor, to whom even a small increase in rates could make a lot of difference, mfis should strive to build more cost effective and efficient delivery models to serve their clientele better. credit rating of mfis the rating of mfis assumes critical importance as mfis are sourcing financing from banks and other institutions. there are several mfis in the country and their rating helps the lend