Meeting the Infrastructure Needs of the Informal Sector through Microfinance in Urban India

This research initiative comprises a series of four national level field notes, an action research component and a discussion paper on issues arising out of the research. It focuses on microfinance institution operating in urban India and especially studies the way they are facilitating the provision of water and sanitation services to poor women consumers. The objectives of this study are:

• To identify, analyse and document the credit related activities of four microfinance institutions based in urban India and involved in providing small scale credit for infrastructure to poor women consumers working in the informal sector;
• To develop a comprehensive loan and repayment system for housing and infrastructure credit to poor women consumers in the informal sector, through an Action Research component;
• To highlight and discuss the main issues and lessons arising from the four field level case studies, also involving the need for new thinking and policy to promote the sector.

The key lessons and issues identified during the research are:

• Microfinancing is an enabling tool for improved water and sanitation services;
• Access to technical support is vital for the success of credit provision for infrastructure;
• There was a lack of land tenure; lack of traditional collateral in the sector;
• Community and municipal partnership is the key to sustainability;
• Regular savings and effective field workers are vital for financial sustainability;
• There is a need for variety of delivery and implementation mechanisms.

The study also states some of the India specific issues such as:

• The growing numbers of microfinance institution models in urban India and suggests that there are four main models i.e.
• Bankers model;
• Traditional non-governmental organisation model;
• Evolving community based financial institutions;
• Mainstream community based financial institutions.

There is also a lack of accurate loan categorisation by microfinance institutions hence the sector volume is difficult to quantify and field level interviews clearly showed that demand for institutional funding for infrastructure is very high and the study recognises that the provision of improved drinking water or drainage facilities in urban slums are equally important.

The study makes following recommendations about the future needs of microfinancing in India:

• The need for the establishment of a national Loan Bridge Fund/ Loan Guarantee Fund, need for capacity building communities, microfinance institutions, municipalities and horsing finance institutions;
• The need to explore the possibilities of scaling up both the infrastructure provision and infrastructure credit to poor communities.