Conditions in Which Microfinance has Emerged in Certain Regions and Consequent Policy Implications

The paper looks at some macro data on the availability of infrastructure, economic growth, density of population and the availability of formal financial services to examine if any of these factors explain the growth of microfinance in certain regions, while the other regions lag behind. For the study, data from the four southern states and three states from the western part of the country have been examined. We find that most of the indicators are not significant enough to explain the regional disparity in the growth of microfinance. However, anecdotal evidence and a perusal of the state policy pronouncements explain that the role of the state could be significant in promoting some of these initiatives. In case of Karnataka, we also find that the banking system seems to have played an additional role in rolling out microfinancial services. The paper concludes by indicating that possibly the sector is still insignificant in the rural economy to establish causality with macro variables. However, there could be possibility of growth in states like Rajasthan where most of the parameters that could foster microfinance seem to exist and with policy intervention on the routing of developmental projects, the movement could get a big boost. We also indicate that the existing network has the potential of unleashing more finance and financial products, and that initiative should be seized forthwith.