Tuesday, October 24, 2006

About financial inclusion

Microfinance through MFIs (Microfinance Institutions) and the linking of SHGs (Self Help Groups) with banks has now reached some 15 mln families. The limits to financial inclusion are set by the sheer numbers of India’s poor, over 70 mln families, meaning that at best, 21% of the poor are reached by microfinance. According to information from the 2001 Census, only 36% of all the families in the country have access to any form of formal financial services.

Studies have shown that the banks could profitably make small loans at rates between 20-24%, the same rates that more efficient MFIs charge on their lending. The experience of the past 15 years has demonstrated that it is free consumer choice rather than official diktats that promotes growth.