Author: PAVAN CHAITANYA

ABSTRACT

Microfinance has emerged as a critical instrument for poverty alleviation and financial inclusion in rural India, where traditional banking systems have historically failed to serve low-income households due to lack of collateral, irregular incomes, and geographical remoteness. This study examines the impact of microfinance on poverty alleviation in rural areas through a qualitative secondary research methodology, drawing on peer-reviewed literature, institutional reports, and a longitudinal dataset of loan disbursements from 2012 to 2024.

The analysis reveals that India’s microfinance sector grew by approximately 2,270 percent over this period, expanding from ₹17,264 crore to ₹4.09 lakh crore in gross loan portfolio, with over 64 million active borrowers. Evidence suggests that microfinance has contributed positively to household income generation, self-employment, women’s empowerment, and financial inclusion — particularly through the SHG-Bank Linkage Programme. However, the study also identifies significant limitations, including high interest rates, over indebtedness, regional disparities, and the risk of debt traps among the most vulnerable households. The findings highlight that microfinance alone is insufficient for sustained poverty reduction and must be complemented by financial literacy, market linkages, regulatory oversight, and targeted government support. The study concludes with policy recommendations aimed at strengthening the microfinance ecosystem to better serve the rural poor in India.