Indian banking system, which is the largest banking networks in the world, has not fared well in terms of meeting the needs of rural credit despite the fact that the people who live in the vast rural areas account for nearly seventy percent of our total population. It is somewhat anomalous that rural credit intake shows a measly thirty percent of the total bank deposits. Thus, it could be validly asked if the banks have met one of the important objectives which underlined the nationalization of banks. The result has entailed a great economic hardship on the the rural poor which has helped the rural money lenders to continue to have a field day by exploiting the rural masses by charging a back-breaking and exorbitant rate of interest. Some of the suicide cases involving a great number of farmers could be directly traced to the strong-arm methods employed by these money lenders who operate in the grey spaces left by the institutional finance.

It is ironical that the even nationalized banks look upon rural credit to be high-risk venture. The Reserve Bank of India, keeping in mind the reluctance on the part of the commercial banks in the matter of extending rural credit, has made an attempt to fill in the blanks by setting up regional rural banks and cooperative banks. But the goal of reaching out to rural poor with the means of catering to their credit needs has continued to elude.

In the early nineties the micro-finance concept was developed and tried out to meet the goal and several nationalized and private banks showed their interest in participating in many such micro-finance initiatives which led to formation of Self Help Groups (SHGs), where poor from homogeneous backgrounds formed into groups of around 20 each and pooled money that was lent to the needy members. By the mid nineties, several mainstream banks began providing credit and savings facilities to SHGs that built credible financial discipline in association with micro finance institutions. By 2004. there were around 1000 micro finance institutions all over the country and realizing the potential of micro finance, commercial banks have forged partnerships with micro finance institutions as both stand to gain- banks by reaching the interior parts of the country and micro finance institutions- by accessing more funds.

However, the success of micro finance is still limited and confined to the well-developed states which have more SHGs operating successfully to alleviate poverty but its impact has not been that significant in North and North-East parts of the country.