Posted on December 16, 2009 - by James

WSJ: Microfinance’s Financial and Social Objectives

Wall Street Journal

According to the 2009 Microfinance India State of the Sector (MISS) Report, the microfinance industry’s client outreach has grown by 30% over the last year to 76.6 million and the total outstanding loan portfolio has grown by a staggering 56% to INR 359 Billion over the same period.

The growing integration of the sector with the capital markets has led to an influx of funds from various channels and has accelerated the transition of the Indian Microfinance Institutions (MFIs) into mainstream companies. While such a period of heady growth especially amidst an overall slowdown in the economy is laudable, one must question whether the industry is fulfilling its core charter of integrating millions of underserved Indians into our financial system in a socially responsible way. Critics have pointed out that even today financial inclusion remains as elusive as ever to the people at the absolute bottom of the pyramid (BOP).

There is also a real danger that some borrowers are falling behind by taking on excessive debt and then using debt rollover to meet their obligations. MFIs are also expanding the scope of their services by using their delivery platforms to bring more goods and services within the reach of rural India; but the same trend could also lead to financial profligacy amongst consumers. We delve into the intricacies of the microfinance debate and look ahead to see how Indian MFIs can manage the next phase of their growth in a way that benefits…

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