Innovative Approaches to Developmental Microfinance in India

This paper focuses on funding sources that best suit the microfinance industry, given its mission to alleviate poverty, in order to create commercially sound and sustainable organizations. It also seeks to identify ways to increase the impact that microfinance can create in the lives of the poor through increased access to education.

The paper discusses the case of LOK Capital, based in New Delhi, India, which invests solely in the microfinance sector and that of Indus Academy chain of schools, an innovative tie-up between an MFI and an education service provider.

The paper makes recommendations for the way ahead for the microfinance sector. It states that:

• Government must implement policy and regulatory changes;
• State governments need to define the role of microfinance as a supplementary channel in providing financial services to the underserved population;
• MFIs need to adopt best practices from the corporate sector and pass on benefits of reduced operational costs to clients;
• Vast distribution channel of microfinance can be used to provide allied services such as education and healthcare;
• Rating agencies must include education lending in their social rating parameters to encourage MFIs to lend more.