Opportunities at the bottom of the pyramid are driving the buzz
today. One of the most significant areas in this category in India is
Microfinance – both in what it has been able to achieve over the past
couple of decades, as well as in its unrealized potential. Besides the
scale of business that is possible in microfinance, what is
even more exciting is the scale of impact that is possible through
microfinance, in enabling other businesses in that segment.
One of the most significant aspects of microfinance over the past 5
years has been the talent and capital it has been able to attract. From
socially-focused entrepreneurs and grants, the industry has moved to
attracting the best consumer finance professionals (with an equally
compassionate outlook) and large scale institutional financing. This,
coupled with the experience that early Microfinance Institutions
provided, has led to emergence of this opportunity at an unprecedented
Challenges remain. Whether skepticism around sustainable growth
rates, the real social impact or, the threats of the industry crumbling
under its own weight by pushing its customers into over-indebtedness.
What is encouraging is that the industry players have recognized these
potential issues and are working to address them proactively.
The gradually visible qualitative shifts in microfinance are equally
exciting. The first of these shifts is the broadening scope of services
from just credit to more services like savings and insurance. Most
people have realized that credit is only one of the many diverse
financial needs of the poor. This approach is likely to create a more
stable and diversified business and, at the same time, reinforce the
relationship that MFIs establish with their customers.
The second major shift is the moving focus towards livelihoods from
just financial products. New MFIs are beginning to align their products
to specific occupations, such as dairy farming or handicrafts, by
understanding the cash flow patterns of those trades. Some of them are
thinking beyond financial services, and providing support services such
as supply chain, or shared marketing infrastructure to enhance these
micro-businesses. Again, the elements of impact and sustainability
underline these initiatives.
To emerge a strong nation in a few decades from now, India needs many
transformations. Access to financial services for the poor is one of
the most fundamental ones, and one that promises to be a game changer.
The time is ripe for all elements of the ecosystem, including
government, financial institutions, trade bodies and entrepreneurs, to
come together and help take this industry to its rightful destiny.