Microfinance Outreach and its Linkages to Human Development: Evidences from South Asia with Special Reference to India

The progress of microfinance outreach can be seen as an effective intervention mechanism to enlarge people’s choice, with respect to some basic indicators of human development. The most important choices are considered to be a long and healthy life, to be educated, and to enjoy a decent standard of living. Under the circumstances, attempts have been made in this paper to examine the cross-country variations in outreach of microfinance sector and that of human development in South Asia, and to establish the empirical relationship between them. In addition, the relationship between microfinance outreach and human development across Indian states is of special interest in this paper. Substantial evidence presented in this paper cast doubt on the empirical association between microfinance outreach and human development, especially after the ‘microfinance meltdown’ in 2008 in South-Asian countries as a whole, and the Indian economy in particular. Therefore, microfinance is not a panacea for achieving human development, rather these semi-formal microfinance institutions can only be a means to promote financial inclusion in low financially inclusive regions which are characterised by the limited presence of formal financial institutions.