Micro Finance Institutes – Are They Relevant in Poverty Alleviation? Lessons from India

Abstract

Micro finance institutes (MFIs) are providing access to credit for informal sector that cannot approach formal lending sector, i.e. the banks. It is considered to be an important instrument for poverty alleviation and improving quality of life. This paper tries to analyze how for this objective has been fulfilled in India. Over time, MFIs in India have grown from strength to strength but, unfortunately there is no clear picture related to the impact on poverty alleviation. On one hand MFIs are commercial organisations working for reduction of risk potentials while on the other hand, there is increasing doubt about their role in poverty alleviation. The Society for Elimination of Rural Poverty, set up by the AP state government, has come out with examples of coercive recovery practices followed by the MFIs and consequent suicide by the borrowers. This paper tries to focus on this issue. The analysis is based on secondary data like reports of SIDBI, RBI, NABARD and other relevant studies. It tries to analyze how far the financing system of MFIs is responsible for creating this dilemma between enhancing social equality and focusing on cost recovery.