Poverty is defined as the deprivation of basic capabilities. Over the past few years India has focused on efforts at scaling up and mainstreaming microfinance by harnessing the resources of the formal financial sector to expand poor people's access to savings and credit.

The supply-led models of development and credit-delivery are now giving way to models of participatory development focusing on demand-led growth. There is growing evidence that micro-finance programmes have the potential of assuring equitable and sustainable development. The real challenge lies in mainstreaming microfinance through the banks to ensure that outreach and sustainability grow in tandem. Institutional self-sufficiency and economic viability are synonymous. Both can be assured through banks. The focus today is on expanding access to growing numbers of low-income borrowers and savers and harnessing the resources of the formal financial structure to that end.

Challenges of Rural Finance Intermediation

Several challenges still confront rural financial intermediation; challenges of selecting the set of institutional design and policy alternatives that will prove to be most effective in different socio-economic environments. These challenges include:

• refraining from utilising subsidy and concessional interest rate driven models as the only vehicles for service delivery to the poor

• encouraging financial service provision for the poor, through both rural and urban operations, as opposed to an exclusive focus on the delivery of supply-led agricultural credit or subsidy-driven credit for input provision

• providing savings services and not merely credit services

• […]