Microfinance has long been recognized as a powerful tool for promoting financial inclusion, especially in emerging economies like India, where a large portion of the population remains outside the formal credit system. An empirical study of microfinance faces practical challenges and issues. Microfinance in India has been defined differently due to the semantic difficulty in conveying various meanings and the different connotations implicit in the term. As a result, efforts are required to develop a working definition of microfinance that reflects both continuity and change without being rigid.
Microfinance refers to providing financial services, such as small loans (microcredit), savings, insurance, and remittances to low-income individuals and households who are excluded from formal banking. Typically designed to be collateral-free and often organized through group models (e.g., Self-Help Groups or Joint Liability Groups), microfinance enables credit access for people facing exclusion due to income, geography, or gender.