Topic: Inclusive growth and issues arising from it.
4. Micro credit is now being considered as one of the most important and an effective mechanism for poverty reduction but concerns associated with its ‘misuse’ leading to over-indebtedness must be addressed. Analyse. (250 words)
Difficulty level: Moderate
Reference: Down to Earth
Why the question:
Undoubtedly, financial technology (fintech) is driving greater financial inclusion. Innovations are giving people more access to financial services through mobile and computing services, the internet, and payment cards. One of these services is microcredit: Small loans for individuals and informal businesses.
Key Demand of the question:
To understand the nature and functioning of microfinance industry and its role in eradicating poverty and its limitations.
Analyse – When asked to analyse, you must examine methodically the structure or nature of the topic by separating it into component parts and present them in a summary.
Structure of the answer:
Begin by mentioning the credit lending structure of microfinance industry.
First, describe the lack of formal credit lending structures to the poor for initiating some business or investment activity and with no collateral.
Next, highlight the role of microfinance sector in empowering women and help the poor to begin an income generating activity and take up small entrepreneurial ventures through small capital financing.
Next, mention few successful models of microfinancing in India and abroad and a few takeaways from them.
Next, write about the limitations of micro-finance in India.
Conclude by mentioning a way forward.