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The Transformation of Microfinance in India: Experiences, Options and Future

Author

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  • Sriram M S
  • Upadhyayula, Rajesh

Abstract

The paper looks at the growth and transformation of microfinance organisations (MFO) in India. We first, define microfinance and identify its "value attributes". Having chosen only those MFOs that have microfinance as the core, we look at the transformation experiences. To understand the transformation experiences better, we identify issues that trigger transformation viz: size, diversity of services, financial sustainability, focus and taxation. Having identified these we look at transformation experiences internationally. We examine the Bolivian, Kenyan, Bangladeshi and the Indonesian experience. We then look at the Indian experiences. We argue that the transformation experiences in India are not large in number. However, we have found that there are three forms of organisations that seem to be popular in the microfinance sector - the Non-Banking Finance Companies, the Banks - both Local Area Banks and Urban Co-operative Banks and the Co-operatives. We then argue that in the Indian case, we find that the MFO spins off from the NGO rather than the NGO transforming itself. Having examined various options, we conclude that there is no ideal or easy path for MFOs to mainstream in India. This has implications for regulatory framework. We argue that there should be regulatory changes that allow smaller MFOs to get into more complex forms as they grow organically. We also argue that NGOs should be allowed to invest in the equity of MFOs and MFO promoted banks, as is the case in Bolivia and Africa. We maintain that entry norms on capitalisation for the current forms of organisations (NBFCs, Co-ops and Banks) need not be changed to ensure only genuine MFOs make use of the legislation and not other organisations masquerading as MFOs.

Suggested Citation

  • Sriram M S & Upadhyayula, Rajesh, 2002. "The Transformation of Microfinance in India: Experiences, Options and Future," IIMA Working Papers WP2002-12-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:wp00052
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    File URL: https://www.iima.ac.in/sites/default/files/rnpfiles/2002-12-01MSSriram.pdf
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    References listed on IDEAS

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    1. Sriram M S, 2002. "Information Asymmetry and Trust: A Framework for Studying Micro-Finance in India," IIMA Working Papers WP2002-09-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    2. Marguerite S. Robinson, 2001. "The Microfinance Revolution," World Bank Publications - Books, The World Bank Group, number 28956.
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    Cited by:

    1. Amrinder Singh & Sushil Kumar Mehta, 2012. "Impact of Self Help Groups in Jammu, India," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 167-204, December.
    2. D. T. Kingsley Bernard & Low Lock Teng Kevin & Aye Aye Khin, 2016. "Entrepreneurial Success through Microfinance Services among Women Entrepreneurs in Sri Lanka: A Pilot Study and Overview of the Findings," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1144-1150.
    3. Challapalli Praseeda, 2018. "Socially Responsible Investment, Microfinance and Banking: Creating Value by Synergy," Indian Journal of Corporate Governance, , vol. 11(1), pages 69-87, June.

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