Microfinance and Risk Management for Poor in India

This paper highlights the need to improve farm level efficiency through microfinancing and microinsurance in order to achieve India's economic and social goals. Indian governments have experimented with several grant and subsidy based poverty alleviation programs that allowed only banks to provide credit. These programs were unsustainable, perpetuated a dependant status on beneficiaries, and depended on government employees for delivery. This led to misuse of both credit and subsidy. Microfinance providers in India include formal, semiformal, and informal providers. The Indian government has taken several steps to promote micro financing, with a focus on women. Conclusions include:

• Flexible repayment schedules lower transaction costs without increasing client default among microfinance clients who are willing to borrow at weekly or monthly repayment schedules;
• Financial institutions should manage risk effectively;
• Microinsurance for definite and accidental loss, crops, and health would minimize agricultural risk and ensure average returns to cultivation.

State governments play an important role in augmenting farm investment, microfinance, microinsurance, and facilitating private investment. Inclusive growth would improve farm level productivity and generate employment for youth.