The State of Microfinance in India: Emergence, Delivery Models and Issues

This paper explores the role and performance of various microfinance delivery models in India.

The self-help group (SHG) movement, SHG-bank linkage program (SBLP), various MFIs and community based organizations provide rich experience of microfinance in India. The main conclusions of the paper are:

• SBLP and MFIs are the two most prominent microfinance delivery methods;
• Regional spread of microfinance is highly skewed;
• Major microfinance concentration is in the Southern states, although it has started picking up pace in other states too;
• New generation MFIs and commercial banks are driving scale rapidly, although the demand supply gap is still huge;
• Innovation in product design, channel configuration and technology use is widespread;
• Microfinance sector is focused largely on expanding outreach;
• Government involvement in SHG microfinance is a welcome development, but has its own disadvantages.

The paper suggests that regional rural banks, cooperatives and SHG-NGO linkages should ensure inclusive financial systems in India. Strategies for financial inclusion should emphasize scaling up quality financial services, reaching increasingly poorer and more remote people and lowering costs to both clients and financial service providers.