To most, microfinance means providing very poor families with very small loans (microcredit) to help them engage

in productive activities or grow their tiny businesses. Over time, microfinance has come to include a broader range of services (credit, savings, insurance, etc.) as we have come to realize that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financial products. Traditionally, microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadening of the concept of microfinance--our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products. Micro Credit is defined as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Micro Credit Institutions are those which provide these facilities. The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income. Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change. Poverty is multi-dimensional. By providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women, who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment. Recent research has revealed the extent to which individuals around the poverty line are vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events. These shocks produce a huge claim on the limited financial resources of the family unit, and, absent effective financial services, can drive a family so much deeper into poverty that it can take years to recover. A small group (15 to 20 members), voluntarily formed and related by affinity for specific purpose, it is a group whose members use savings, credit and social involvement as instruments of empowerment

Thrift and credit activities Participatory monitoring of the groups Group level poverty reduction plans Advantage financing through shg : An economically poor individual gains strength as part of a group. Besides, financing through SHGs reduces transaction costs for both lenders and borrowers. While lenders have to handle only a single SHG account instead of a large number of small-sized individual accounts, borrowers as part of a SHG cut down expenses on travel (to & from the branch and other places) for completing paper work and on the loss of workdays in canvassing for loans With a view to facilitating smoother and more meaningful banking with the poor, a pilot project for purveying micro credit by linking Self-Help Groups (SHGs) with banks was launched by NABARD in 1991-92. Reserve Bank of India (RBI) had then advised commercial banks to actively participate in this linkage programme. The scheme has since been extended to RRBs and co-operative banks. Experiences and literature shows that federations are set up with one or more of the following objectives:

To get access to policy making bodies through political empowerment and social mobility To facilitate linkages between SHGs and banks/govt. agencies/local institutions To have better access to development information and marketing linkages To resolve any conflicts that may arise within member SHGs To assist in strengthening the performance of member SHGs To help in achieving sustainability of SHG To strengthen (through training, information dissemination, on-site support, etc) the capacity of member-SHGs in one or more of a variety of fields (bookkeeping, accounting, marketing, financial management, advocacy, bank-linkage, accessing government schemes, to name some) To provide credit, especially multiple credit lines To provide savings facilities, especially voluntary savings To undertake marketing of the produce of the members of the SHGs To provide life/loan insurance services To provide staff support to member-SHGs To write and/or audit the accounts of member-SHGs To review/regulate/supervise the functioning of member-SHGs To promote new SHGs To create the political/social space that women need to live their lives as fully as they desire to To be the window to the outside world, in replacement of the promoter organisation To undertake all that the external facilitator was undertaking, after its departure.

Earlier this week the G20 Financial Inclusion Experts Group (FIEG) announced the endorsement of nine Principles of Innovative Financial Inclusion which were created by the Access Through Innovation Sub-Group of FIEG. These principles, which build on the experience of policymakers throughout the world, will create the foundation for an upcoming strategy towards financial inclusion that is based on the safe and sound spread of new approaches and which aims to encourage an enabling environment for innovation while also protection the client and financial systems. The Nine Principles of Innovative Financial Inclusion are:

1. Leadership: Cultivate a broad-based government commitment to financial inclusion

to help alleviate poverty.

2. Diversity: Implement policy approaches that promote competition and provide

market-based incentives for delivery of sustainable financial access and usage of a broad range of affordable services (savings, credit, payments and transfers, insurance) as well as a diversity of service providers.

3. Innovation: Promote technological and institutional innovation as a means to expand

financial system access and usage, including by addressing infrastructure weaknesses.

4. Protection: Encourage a comprehensive approach to consumer protection that

recognises the roles of government, providers and consumers.

5. Empowerment: Develop financial literacy and financial capability. 6. Cooperation: Create an institutional environment with clear lines of accountability
and co-ordination within government; and also encourage partnerships and direct consultation across government, business and other stakeholders.

7. Knowledge: Utilize improved data to make evidence based policy, measure progress,
and consider an incremental test and learn approach acceptable to both regulator and service provider.

8. Proportionality: Build a policy and regulatory framework that is proportionate with 9. Framework: Consider the following in the regulatory framework, reflecting

the risks and benefits involved in such innovative products and services and is based on an understanding of the gaps and barriers in existing regulation. international standards, national circumstances and support for a competitive landscape: an appropriate, flexible, risk-based Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime; conditions for the use of agents as a customer interface; a clear regulatory regime for electronically stored value; and market-based incentives to achieve the long-term goal of broad interoperability and interconnection.