Microfinance in an Emerging Economy: an India Perspective

Microfinance in an Emerging Economy: An India Perspective

INDEX

Executive Summary

Introduction

What Statistics say?

Microcredit

Commercial Microfinance Industry

Characteristics of Commercial Microfinance

Characteristics of most Lending

Microfinance in Asia

Indian Microfinance Context: A Brief History

Microfinance providers in India

India advantage of building large scale CMF

Rural Credit Scenario in India

India: How can large scale CMF Develop?

What is Lacking? And What needs to be done?

Microfinance Policy and Regulatory Framework

Role of NGO

Role of Self-Help Groups

Role of Donors

Role of Government

Microfinance and Corporate Partnerships- Leveraging each other

Bibliography

Appendix

Executive summary

Microfinance, covering an array of financial services extended to the poor is a potent tool for alleviating poverty. Yet, unlike medium and large scale finance, microfinance has not received its due place in national development policy framework. The ignorance of the role of microfinance has been partly due to the pessimism expressed by some of microfinance practitioners about its outreach capability and partly due to the negligible bargaining power of its clientele, viz., and the poor, as against that of the middle class of the society.

With a successful social mobilization and empowerment program to precede the credit delivery, even the poorest of the poor stand to benefit from microfinance. However, to attain the maximum success and ensure sustainability, an attitudinal change in the target clientele should be effected. This change in the form of inculcating a high need for achievement would be instrumental in creating a successful entrepreneurial class among the microfinance users.

The best method of ensuring stability, solvency and viability of MFIs is to promote self regulation within such organizations, checked by market discipline. Such an MFI system, devoid of moral hazard and adverse selection issues would bring about net welfare gains for the society. Government regulation of MFIs should be effected only as a supplement to this approach.

In order to strengthen the MFI system in the region, the following proactive measures may be introduced.

(a) Introduction of a separate accounting and auditing standards system for MFIs so that it would establish a uniform accounting system which is less stringent than the systems applicable to ordinary business firms;

(b) MFIs should be managed by professionals to enable MFIs to maintain a high degree of professionalism in their operations;

(c) MFIs should make a clearly specified policy statement that includes periodical voluntary disclosure of operations, activities, financial position for the benefit of the public;

(d) MFIs should, on their own, consent to having