The future of microfinance in India

Abstract

Microfinance has been on the front of the scene over the past few years, more and more presented as the way to alleviate poverty throughout the world. This tool has very specific characteristics used to promote local development. Microfinance has extended itself from Bangladesh to the rest of the planet with a fast growth, exposing itself to some common criticisms, such as the vicious circle of borrowing, the absence of long term financial safety or its sustainability. India has specific characteristics regarding Microfinance: its development has been widely supported by Indian government, resulting in a strong growth of the market since 2009. In this context, various actors with different motivations and expectations have coexisted: indeed, Self Help Groups, Independent Microfinance Institutions and private sector banks have been extended microfinance products from financial to non- financial ones for a better fit with the needs of the poorest. Being trapped between. ut Microfinance is not exempted of criticism and controversy, and voices have risen to doubt about its sustainability and its. Indeed, over the past few years, Indian microfinance drifts have been thrust into the forefront of public debate closely linked with explosion of scandals: The Andhra Pradesh Crisis has highlighted some of the microfinance limits in a context of poor regulation on a fast growing market. Because of the antagonism of private and public sector, Microfinance has been trapped between two visions. However, the fight between them for the market of financial services for the poor has not been only economic but also ideological. To prevent Microfinance to collapse in India, changes have to be undertaken. The comparison between the functioning of French MFIs and Indian situation led us to state on what should be done in term of regulation in India for a better efficiency and control of Microfinance. Andhra Pradesh strict regulation and its consequences on the market highlights the necessity of an appropriate set of measures implemented step by step and adjusted to better respond to limits. Microfinance in India will have to overcome its issue with patience to reach its flourishing days.