By Dr V. Basil Hans Associate Professor and HOD of Economics St Aloysius Evening College, Mangalore
Introduction
There is a strong feeling around that globalisation is tapering, and there are also serious concerns about continuing marginalisation of sections of the population in India. Millennium Development Goals, Human Rights Advocacy, Economic Empowerment and Inclusive Growth have, therefore, become catchwords today. Ever since Independence, India has considered that financial route is the safest one for a broad-based growth. A majority of the poor in India are people of small means and their needs are specific. Hence microfinance is suited to them. To achieve the goal of inclusive growth micro-finance was introduced to meet the small financial needs of the people with small means. It is a tool that can help develop entrepreneurial activities, employment, economic growth, social cohesion, financial sustainability, eradicate poverty and promote human development.
Microfinance refers to small savings, credit and insurance services extended to socially and economically disadvantaged segments and low income populations of society. Microfinance is emerging as a powerful tool for poverty alleviation in India.
Potential for growth of microfinance in India
Despite the presence of multiple players in the microfinance landscape and mature models of micro-lending, with a significant portion of its population in the low-income band, India represents a huge opportunity for the microfinance sector. Though government schemes and established financial institutions have enhanced access to microcredit for nearly 67% of the Indian population living in rural areas,16 the significant geographic concentration of MFIs within a few districts of the country (34% of the districts with microfinance presence.
Contribute 80% of the portfolio17) indicates the potential for achieving higher microfinance penetration. 71% of the financial institutions believe that Eastern India offers the maximum potential for growth in future due to relative saturation in the southern markets.
Additionally, a significant portion of the Indian population still lacks access to credit from the formal sector and consequently borrows from informal channels like moneylenders or relatives, indicating the scope of micro-lending in achieving financial inclusion and overall industry growth.
However, to realise this growth opportunity, it is essential for the sector to identify and assess the emerging needs within the sector and address the same through relevant initiatives for optimised growth.
Inclusive Growth
– Inclusive Growth is the development mantra today
– Sustainable, pro-poor and participative growth to overcome poverty and dependency
– To include people living below the poverty line, poor artisans, landless labourers, small and marginal farmers and so on
– Poor as partners in planning for progress; designers (decision-makers) in the reverse game of poverty
How to Include
– Financial Inclusion
– Borrowing for productive investment; credit for development
– Role of banks, cooperatives (e.g. ‘sauharda’ cooperatives), SHGs and MFIs
– Group dynamics for management and empowerment of communities: swift/thrift/entrepreneurial spirit
– Ethics of Repayment
– Good governance
Financial Inclusion
– It means making banking/financial services affordable and accessible to the poor/disadvantaged groups of people, as a perpetual exercise
– Credit-Savings-Investment- Income-Savings cycle
– Journey from financial intermediation to social intermediation
Opportunities
– Deciding the outcomes and devising the strategies by all the stakeholders using available and generated information, institutions and information
– State as social planner; individual as rational choice maker
– Applicable to fields like SMEs, Higher Education too
Challenges
– Challenges of financing (e.g. coverage) and challenges of including!
– Challenges in capability enhancement
– Challenges in regulating (e.g. interest rate controversies in micro credit)/managing activities (e.g. risk management, global crises, competition vs. standardization etc)
– Challenges in maintaining quality of services
Findings
– Poor coverage
– Declining deposit growth
– More Women SHGs than of men: (e)quality?
– Technological Gap, Savings-Investment Gap
– Rural-Urban Divide
– Few ‘methodological’ studies on the subject
– Poor evaluation
Suggestions
– A vision and a mission for inclusion and livelihood security, moving from ‘transition’ to ‘transformation’
– An appropriate methodology combining technological and human approaches (e.g. e-learning, HRD programs, financial literacy, counseling etc)
– Rural-urban balancing; men and women as partners in progress: social and cultural inclusion
– Mitigation and adaptation steps beyond finance, say dealing with waste management, health care, human rights advocacy etc : robust planning and implementation
Conclusion
In this paper we have discussed – (i) the opportunities and challenges faced by microfinance institutions in mobilising resources and enabling individuals and communities to overcome hurdles for more participative and productive growth; and (ii) the need for fostering new collaboration between institutions and people for good governance.
Poverty is too huge and complex problem, and microfinance itself should grow from “transferring resources” to “transforming resources”. It has to be freed from the on-going controversies of interest rates as well as from the problems of uneven spread etc. and help SHGs take up “social intermediation” in the next phase.
Microcredit should be able to transform the borrower’s journey from that of a job seeker to a job creator. As the sector evolves through better regulation and investment flows, there is a need to leverage funds in order to create a sustainable and profitable ecosystem for borrowers. The craftsman should have access to supplies to develop handicrafts along with access to offline and digital platforms to sell products.
India aims to become a USD 5 trillion economy by 2025 and the microfinance industry will play a leading role in uplifting the lives of millions of low-income households and enabling them to contribute to the country’s economic growth. As the microfinance industry tackles the current set of challenges, it is imperative for the industry to establish strong governance and regulatory practices. The future course of the industry will be determined by the ability of players to forge new partnerships, develop new products, create new investment channels and leverage technology to meet the demands of consumers.
Healthy solutions should come from within: we must practice inclusive growth in a general equilibrium model: local-global network; work-wealth-welfare linkages. There should be good governance by state as protector and promoter and not simply a ‘provider’. The SHGs and MFIs need accountability and transparency for helping people move from poverty to self-reliance with duty, dignity, equity and energy.
About the author:
Dr V Basil Hans has been teaching at St Aloysius College institutions for the past three decades. He has produced six MPhils and three PhDs. He has written more than 200 articles in journals, books and newspapers in English and Kannada. He is serving as honorary editor in more than 30 journals. He has presented papers in 77 conferences. He has written more than 20 books. His book on Digital Banking is translated into eight foreign languages.
