As a majority of the Indian population lives in its 650,000-odd villages, there has been a consistent attempt by successive governments since Independence to develop rural India. Despite these attempts, the sad truth is that due to ineffectiveness in government or public delivery systems the policy benefits hardly trickled down to the targeted beneficiaries.

As the nation works towards building a physical infrastructure, there is an urgent need to review the manner in which we are building our infrastructure in the rural areas, which hold around 715 million people.

The importance of specially building a robust financial infrastructure is apparent when about 290 million of these people survive on less than Rs.20 a day and more than half of them do not have any access to either banking or formal funding infrastructure.

It is this lack of access that creates opportunity for local moneylenders to thrive by charging exorbitant lending rates to their clientele. A majority of them are rural poor and sometimes their inability to repay leads to either selling of their assets or taking of extreme steps like committing suicides.

The restricted access to capital and the high cost of servicing create a major social problem; in the absence of inadequate rural enterprises vis-�-vis job opportunities, the young generation has been migrating from rural to urban areas for a better living.

Not only does this create an opportunity for exploitation of these young men and women, it also leads to an incredible pressure on the urban infrastructure in the cities and metros. Establishment of sustainable rural enterprises is no doubt the best way to address this problem. In doing so, it is imperative to create requisite access to financial infrastructure at the grassroots.

The rural funding landscape has been traditionally dominated by local moneylenders where gradually more accessible, clientele-friendly, self-sustaining funding systems are needed to be in place. Looking at the recent success of the micro-financing system especially in the developing countries, it could be a viable funding model for growth of sustainable rural enterprises in India.

While the micro financing policy has several merits, it has inherent challenges too! Small transactions may entail high administrative costs. Lending terms may be inappropriate for a particular group of clientele who are conversant with traditional practices of borrowing as well as inadequate knowledge of cash flow and investment opportunities.

The borrowers often need the services of adequately trained micro-finance managers and sometimes their unavailability does affect growth. There are also legal or cultural biases against women, barring them from taking advantage of such services even when available.

Client illiteracy and lack of financial experience are further obstacles. Such shortcomings have been the major bottlenecks in propagating micro-financing.