Attracting Private Capital in Pursuit of Social Goals: A "Social Investing" Approach to Indian Micro Credit

This paper discusses the state of microfinance in India and the need for microfinance institutions (MFIs) to be commercially oriented. It discusses:

• The concept of investing for social purposes as against merely giving;
• The public goods supply chain, which links three essential functions, namely: Financing, Intermediation and Delivery;
• The smart subsidy which when applied to the public goods chain, acts as a catalyst to what would then become a self-sustaining flow of private capital to fund the delivery of a public good or service;
• Commercial viability of the microfinance sector in Asia and observes that there is enormous potential for microfinance to grow and create commercially viable MFIs that are capable of delivering financial services to large communities of poor people at affordable rates;
• The Indian microfinance sector, and observes that it is underdeveloped:
  • Most Indian MFIs see themselves as providers of development assistance to the poor;
  • There is a lack of commercial orientation;
  • The challenge is to attract for-profit financing sources to fund the delivery of affordable financial services to the poor in a way that is commercially viable.
• Lok Capital as a model for creating large scale, commercially viable MFIs in India.

The paper concludes that for profit MFIs should be the main delivery channel of financial services to the poor, working in tandem with not-for-profit organizations like NGOs, and that Lok Capital is a good example of the same.