Micro-credit plays a crucial role in meeting the credit requirements of the poor by filling the gaps in the formal credit system. Since the poor often lack the collateral required by commercial banks, they are frequently excluded from the traditional credit network.

Self-Help Groups (SHGs) have emerged as a significant channel for micro-credit. They promote thrift in small proportions through minimum contributions from each member, creating a pool of money.

From this pooled money, credit is provided to needy members to meet their financial requirements. This system allows repayment in small instalments at reasonable interest rates, making credit accessible and helping the poor avoid exploitation by moneylenders.