Poverty is an obstacle to rapid, balanced and sustainable economic development. UNDP Human Development Report (1997), defines poverty as "the denial of opportunities and choices most basic to human development - to lead a long healthy creative life and to enjoy a decent standard of living, freedom, dignity, self-esteem and the respect of others." As per the Human Development Report (2009), India's rank in human poverty index is 88 out of 135 countries.

Even after five decades of planning and nearly a three-fold increase in the per capita income during the period, a very significant proportion of the country's population continues to live in poverty. This certainly raises questions regarding the past efforts made in eradicating poverty. There is recognition of the fact that poverty and deprivation must be ended as soon as possible. Search for newer approaches and instruments of poverty alleviation continue and it is in this context that microfinance has come to acquire significance as an innovative and potential instrument. Poverty alleviation is still an unfinished agenda in India. Despite efforts made over the past few decades, poverty exists, especially in rural areas. Poverty ratio in India was 51.3% during 1977-78. This figure has come down to 37.3% during 1993-94 and further to 27.1% during 1999-00. (GOI 2007).

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