Paper

Micro Finance in India

How can microfinance in India become vibrant, significant and sustainable?
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This paper provides an overview of the microfinance scene in India. The paper:
  • States that microfinance refers to "small savings, credit and insurance services extended to socially and economically disadvantaged segments of society";
  • Examines the demand for microfinance services in India, looking separately at the demand for microcredit, savings and insurance services;
  • Explores the supply of microfinance services, describing:
    • Efforts by the Government of India (GOI) to provide microfinance services through the formal financial sector,
    • The extensive expansion of the banking network and the emphasis on lending to small borrowers,
    • Problems such as cumbersome procedures, high transaction costs, etc,
    • The unmet demand for savings services,
    • The lack of awareness about insurance services amongst the poor.
The paper examines the microfinance institutional structure in India, dividing it into 'mainstream' and 'alternative' microfinance institutions (MFIs). It describes the problems associated with:
  • Mainstream MFIs, such as borrower-unfriendly products and services, inflexibility and delays, etc;
  • Alternative MFIs, such as inappropriate legal forms, lack of commercial orientation, lack of proper governance and accountability, etc.
The paper then discusses how the GOI, MFIs and microfinance practitioners are attempting to remove these hurdles. It concludes by stating that microfinance in India needs innovative and forward-looking policies combined with a commercial approach to achieve its goal of meeting the financial needs of the poor.

About this Publication

By BASIX
Published