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Abstract
Microfinance is a type of banking service provided to unemployed or low-income individuals or groups or niche women groups who otherwise would have no other access to financial services. Muhammad Yunus pioneered microfinance in Bangladesh in 1976 for helping poor people, especially women, short-term loans to enhance their business activities. The main motive of this banking service is to allow entrepreneurs to have a savings account with no minimum balance. In 2006, the Nobel Peace Prize was awarded to both Yunus and the Grameen Bank for their efforts in developing the microfinance system. Microfinance helped to reduce income inequality and allowed the people of the country to participate in the economy. Moreover, this leads to a downward trend in income inequality. In India, the National Bank for Agriculture and Rural Development (NABARD) looked at several models for offering financial services to the unbanked, especially women, and came with the model called Self-help Groups (SHGs) which is a type of microfinance. In this approach, a small group of women are able to form their own business and earn money for their poverty. Recently the Reserve Bank of India has raised the micro loan limits to ensure higher flow of funds to the economically weaker section as their role in the economy has grown over the years with the government’s inclusive agenda. The RBI has implemented this because MFIs in delivering credit to those in the bottom of the economic pyramid and enable them to play their assigned role in a growing economy.