The success of microfinance in India, a proven fact over the last few years, clearly reveals the viability of the business model followed across the country. Additionally it also has the ability to reach out to a large percentage of the populace that has remained out of the purview of formal banking channels for decades. The importance of MFIs, working in tandem with banks, as an important conduit towards providing financial services to ‘unbanked’ millions, is reflected in a concept note from Sa-Dhan, the self-regulatory organization of MFIs.
Sa-Dhan finds that, if more than 22 lakh clients from self help groups are linked by credit to banks under the SHG-bank linkage programme, an additional 1 crore clients receive service through MFIs. This goes to show that not only has microfinance seen unprecedented growth over the last few years, the sector has securely established itself as a significant contributor to the government’s agenda of ‘financial inclusion’. Moreover, this sector can go a long way to pursue the government’s agenda of a cashless economy, thus, not only empowering people from far-flung parts of the country but also creating a significant social impact.
With microfinance in India standing at a crucial juncture, a 2016 report from the Asian Development Bank’s think tank, ADBI, finds that the country’s financial inclusion is undergoing a tectonic shift, with the focus being more on finance services instead of on credit. Under these changing circumstances, it is only natural that MFIs, which mostly serve low-income households through their women members, will go a long way in extending their agenda of including more and more people into the financial mainstream.
Moreover, for a country like India, where around 26 percent of the population lives below the poverty line, MFIs have come across as an alternative for the rural poor to get out of the clutches of loan sharks. In this context, it is significant to mention that unlike commercial banks, where large scale defaulting has become a crisis, in microfinance, the default rate is found to be less than 10 percent.