Remittances and Microfinance in India: Opportunities and Challenges for Development Finance

This paper evaluates the opportunities and challenges facing Indian MFIs to partner with formal money transfer agents. According to the policymakers, this partnership will help channelize the flow of remittances to the poor households in the receiving regions.

The paper explores the possibility of MFIs serving as intermediaries for the large network of bank branches and post offices, to provide remittance services due to their reach and informal nature. It studies the challenges MFIs face such as legal framework, financial constraints, information asymmetry, financial illiteracy, and lack of infrastructure. The paper also proposes two models of remittance transfer and mobilization. Findings include:

• Developing countries like India, with a huge population, do not have a developed market for remittance services;
• Development practitioners have found that the microfinance movement has successfully reached the poor with effective financial services;
• Market for internal remittances has been relatively neglected due to various operational, legal, and political obstacles. In this context, the new age MFIs come across as an alternative option for migrants in the most interior rural pockets to avail the formal remittance services.