IBPS Test 10

Microfinance institutions occupy a critical position in India's financial inclusion architecture, providing small loans and financial services to low-income households, women entrepreneurs, and rural communities that are excluded from formal banking channels. The origins of the modern microfinance movement in India trace back to the group lending methodology pioneered by the Self-Help Group Bank Linkage Programme, which was conceptualised by NABARD in the late 1980s and gained significant scale through the 1990s. The SHG-Bank Linkage model organises women in groups of ten to twenty members who save regularly, extend small internal loans to each other, and collectively access bank credit. The model has achieved remarkable scale, with millions of SHGs covering hundreds of millions of women across India, making it the world's largest microfinance programme. The discipline instilled through regular group meetings, compulsory savings, and peer accountability has been credited with improving financial literacy, empowering women in household decision-making, and creating social capital in rural communities. Microfinance institutions operating under the Microfinance Institutions Network and regulated by the Reserve Bank of India provide individual and group loans to low-income borrowers, typically for income-generating activities such as petty trade, handicrafts, livestock rearing, and small manufacturing. The MUDRA scheme, launched in 2015, provides refinancing support to microfinance institutions and banks for lending to micro enterprises in the informal sector. MUDRA loans are categorised as Shishu for loans up to fifty thousand rupees, Kishore for loans between fifty thousand and five lakh rupees, and Tarun for loans between five lakh and ten lakh rupees. The scheme has disbursed crores of loans and has been particularly beneficial for women entrepreneurs, Dalit businesspersons, and first-generation entrepreneurs who lack the assets required to access conventional bank loans. The Pradhan Mantri Jan Dhan Yojana, launched in 2014, was a foundational financial inclusion initiative that aimed to provide every unbanked household with a basic savings bank account, debit card, and access to insurance and pension products. The scheme achieved the opening of hundreds of millions of new accounts, dramatically increasing formal banking penetration in rural and semi-urban areas. However, ensuring that these accounts are actively used, rather than remaining dormant, has been an ongoing challenge that requires complementary efforts in financial literacy, digital payment adoption, and creation of viable economic opportunities for account holders. The JAM Trinity — Jan Dhan accounts, Aadhaar biometric identification, and Mobile numbers — has been leveraged to transform the delivery of government subsidies and benefits through direct benefit transfer, eliminating intermediaries and reducing leakages. Financial inclusion extends beyond credit and savings to encompass insurance, pension, and investment products, and efforts to provide low-cost insurance through Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, and micro-pension products have significantly expanded social protection for vulnerable households.