Microfinance – Time to Get to Back to Basics?
MicroSave's India Focus Note No. 41 examines challenges that have accompanied the rapid growth of the Indian microfinance sector in the last few years.
The rapid growth of the Indian microfinance industry has changed its complexion and nature. Microfinance has transformed from being a sub-set of the development sector to being a sub-set of the financial services industry. Microfinance is already pushing towards recognition as an industry with a separate Act for MFI regulation in the offing. This growth has led to many issues and challenges such as:
- Concerns about mission drift;
- High growth rates leading to mono-products and multiple lending;
- Lack of transparency;
- Entry of private equity players leading to rapid commercialization;
- Meaningless growth.
The paper states that the government and its programs cannot address the needs of the large number of poor in India. Hence, the role of private sector microfinance will remain. However, the sector needs to adopt a client-responsive approach, coupled with ethics-based transparency to reach greater heights and fulfill a very strong need of the poor people in India.
