Growth of Indian microfinance : a case-study-based review of trends and challenges

Abstract

The microfinance industry in India experienced extraordinary evolution throughout the 1990s and into the new century, and it is now entering a new phase of rapid expansion. But there is still a huge gap between the demand for and supply of microfinance services in India. With its enormous population of poor people, India is attracting increasing attention from commercial players and government agencies, both of which are instrumental to furthering the growth of microfinance. This study reviews the current state of microfinance in India using the case-study approach. Two examples were chosen as representatives of the most prevalent forms of microfinance delivery-the Grameen model and the Self Help Group model. The two cases also represent two diverse schools of thought that dominate the worldwide microfinance industry: for-profit commercial microfinance institutions (MFIs) and not-for-profit NGO MFIs. The study discusses evolving legal structures, strategies, financing models, and operating models used by Indian MFIs to rapidly grow their operations in order to fulfill the huge unmet demand. It also covers the legal, financial, and operational challenges facing MFIs, and concludes with recommendations for remedial measures and policy changes that are required to support the urgent need to expand microfinance services in India.