Innovations in Microfinance - Looking beyond Income Poverty

Abstract

unique amalgamation of industrial (including financial) and institutional reforms in the present scenario of development economics. For the developing countries like India it has come as a breakthrough in the philosophy and practices of poverty eradication, economic empowerment and inclusive growth. Yet given the enormity of economic compulsions and complexities in these countries, microfinance is an unfinished agenda. The main objective of this paper, therefore, is to shift the focus from mere financial access to poverty eradication and people’s empowerment, sifting the ‘performance’ of Microfinance Institutions (MFIs) from their ‘popularity’. The typical microfinance clients are low-income persons who do not have access to formal financial institutions. Therefore, there is a tendency among development thinkers and practioners to gauge the impact of MFIs purely in monetary terms, i.e. eradication of income poverty. This is not only a partial view of the potential and purpose of microfinance but also a cause of unbridled growth of MFIs. MFIs have the capacity and responsibility of empower the most vulnerable, such as women, rural artisans etc; to allow the not-yet-economically-active to become so; and to create community-based structures that build mutual support and trust. The argument in this paper is that MFIs by releasing the true potential of its members through social intermediation can ensure building an inclusive society. MFIs have the advantage of combining the good features of both formal and informal credit, even improving productivity and credit-worthiness through the ethics of repayment. The plight of farmers in India and the scenario of suicides need to be examined in this context. For microfinance, therefore there is ethical and economic justification for looking beyond income poverty or to move from financial intermediation to social intermediation. So today we need to not only evolve new products or services under the gamut of microfinance but also explore new frontiers of development, social and economic. This hinges on human development in terms of infrastructure for health, education, skill and enterprise. This is also in-keeping with the Millennium Development Goals (MDGs). The positive signs are already visible. Several MFIs have recognised the need to be socially relevant and active in order to be commercially viable and useful. The Kalinjiam success story is a case in the point. This paper calls for a symbiotic relationship between financial intermediation and social intermediation, to remove the economic and socio-cultural barriers to empowerment, inclusion and development. Inclusive growth requires not only physical, natural and human capital, but also social capital. Also further research is need to a have a reality check of ‘what is really happening’, uniquely exploring both social and financial performance in the MFI sector in general and Self-Help Group (SHG) movement in particular.