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While microfinance has the potential to contribute positively to these goals, its effectiveness can vary depending on various factors such as the regulatory environment, the availability of support services, and the sustainability of microfinance institutions. Elucidate.

Topic: Inclusive growth and issues arising from it.

4. While microfinance has the potential to contribute positively to these goals, its effectiveness can vary depending on various factors such as the regulatory environment, the availability of support services, and the sustainability of microfinance institutions. Elucidate. (250 words)

Difficulty level: Moderate

Reference: Live Mint , Insights on India

Why the question:

The article highlights the growth of the microfinance sector in India during the fiscal year 2022-2023. According to data from Sa-Dhan, a self-regulatory organization for microfinance institutions (MFIs), the microfinance portfolio witnessed a growth of 21% during this period.

Key Demand of the question:

To write about the role of microfinance in inclusive growth and development.

Directive word: 

Elucidate – Give a detailed account as to how and why it occurred, or what is the context. You must be defining key terms wherever appropriate and substantiate with relevant associated facts.

Structure of the answer:

Introduction: 

Start by defining micro-finance and give context with respect to growth of micro-finance in India.

Body:

First, with examples, write about the role of micro finance in poverty reduction, empowerment of women, assisting vulnerable groups, and improving standards of living – financial inclusion, credit provision, financial services in unbanked areas, growth of NBFC’s, financial sustainability of the MSME sector and promoting women entrepreneurship etc.

Next, write about the shortcomings of MFIs.

Conclusion:

Conclude by writing a way forward.