Microfinance in India Needs a Clear Policy Direction

China, 70% of whose population lives in rural areas like India, too has the same tasks to achieve like India: narrow the rural-urban divide and achieve ‘inclusive growth’, and it seems to have a clear policy direction towards micro lending. A report titled "Microfinance in China: A Growing Footprint in the Wake of New Guidelines", quotes Liu Ke Gu, ex-banker, National Development Bank (China), as saying that microfinance has made a significant contribution to relieving employment pressures in China, and is thriving as the most vibrant sector in the whole (Chinese) economy.

In comparison, microfinance in India, which can enhance rural incomes by diversifying rural economy into areas other than farming during off-season and at times of adverse weather, etc, to contribute towards ‘inclusive growth’, seems to have lost its way. "Growth without purpose and direction" is what best summarizes a recent report on microfinance in India, titled 'the State of the Sector Report 2008'. It points out that the past trends of (a) credit growth in high-growth areas and among better-off clients with no effort to consciously target the poor; (b) high costs for borrowers due to lack of access to cheaper sources of funds; and (c) lack of good services continue to remain matters of serious concern. In an era where the government is investing in shoring up rural infrastructure, it is time microfinance be provided with the necessary thrust to make ‘financial inclusion’ true and meaningful by promoting and nurturing entrepreneurship in the rural belt.

It is time the microfinance bill (Micro Finance Sector Development and Regulation Bill, 2007), reportedly mired into controversy and needing amendments, gets Parliamentary clearance at the earliest, to pave the way for effective micro-financing, thereby contributing to ‘inclusive growth’.

Full report: Microfinance in China: A Growing Footprint in the Wake of New Guidelines