Microfinance and Inclusive Growth in Rural India

Abstract

This article is based on the premise that poverty has developed social system and subsystems of its own for exploitation poor and especially women. To alleviate the poverty Micro-finance is an intervention based on social intermediation in which poor people can mobilize their savings, link it with credit and finally become self-employed and generate livelihood. It results in building social capital and livelihood. This paper traces the evolution of the Microfinance revolution in India as a powerful tool for poverty alleviation. Where institutional finance failed Microfinance delivered, but the outreach is too small. This paper delineates the three distinct aspects which need to be addressed. The first is to protect the rights of the micro-borrower, the consumer of micro-financial services. The second is that oversight of risk-taking by firms operating in microfinance, since this could have systemic implications. The third is a developmental role, emphasising scale-up of the microfinance industry through bank linkage. The context for this paper also derives from the current overriding emphasis on microfinance in rural finance discourse and its celebration as the new ‘magic wand’ in the fight against poverty. The paper argues for mainstreaming impact assessment in evaluation of programmes for realizing the full potential of microfinance in achievement of Millennium Development Goals.