Commercialization of Microfinance in India

World over, the needs of the poor are found to be largely similar. The poor require Financial services in the form of credit, savings, insurance and other services for meeting their survival needs, improving their living conditions, coping with calamities, disasters and emergencies, and above all, to take care of their livelihoods. In order to meet their needs, they generally rely on informal sources such as local moneylenders, village communities, local clubs, friends, relatives and other social acquaintances. The services of formal financial institutions to the poor have remained limited. The developing countries, all over the world, have, during the past few decades, witnessed the emergence of alternative financial institutions differing in form and characteristics but having a common goal of promoting “Financial Inclusion” by providing financial services to the unreached and unbanked segment of the population. As a result of various successful programs all over the world, Microfinance has emerged as an attractive tool to help the poor, since it not only helps in improving livelihoods and reducing their vulnerability but also has a significant positive impact on women's economic and social empowerment, in terms of their ability to access loans, own productive resources, engage in income generating activities, decision making and increased mobility. But of late, massive investments by private equity firms coupled with an initial public offer (IPO) by SKS Microfinance has ignited a debate about the ethics and objectives of microfinance institutions (MFIs) in India. Though initially started by women’s groups and NGOs to empower poor people at local level, microfinance is no longer a micro or local phenomenon. Globally, the microfinance industry controls over $50 billion in assets. In India particularly, there appears to be a shift in focus from Banking for the Poor to Banking on the Poor and the purpose of this paper is to examine all issues related to the debate.