Paper

Microfinance in India – A State of the Sector Report, 2006

The latest developments, issues, recommendations and achievements of the Indian microfinance sector
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This State of the Sector report presents the latest issues, developments, recommendations and achievements of the Indian microfinance sector. The report:

  • Synthesizes recent studies that highlight issues on which continued progress depends;
  • Identifies knowledge gaps that call for further research, statistical efforts, etc.

The report states that:

  • Indian microfinance has grown rapidly towards the goal of financial inclusion;
  • However, it needs to pay attention to the following issues:
    • Issues of quality;
    • Improving book-keeping in the self-help-group (SHG) model;
    • Consumer protection issues in the microfinance institution (MFI) model;
    • Extending the depth of outreach and evolving products which are responsive to consumer needs.
  • The sector had underestimated the image problem that confronts the business of money-lending;

The report identifies the following trends:

  • Increase in bank credit to MFIs;
  • Decrease in the constraints for the availability of on-lending funds;
  • Greater formalization;
  • Expansion of urban microfinance;
  • Downscaling;
  • Diversity in the financial sources for technical assistance for capacity-building;
  • Increase in microinsurance.

The report recommends:

  • Creating an awareness of the need to charge cost-covering interest rates;
  • Long-term relationship building between MFIs and the government and other stakeholders;
  • Transparency and attention to consumer protection;
  • The creation of diversity in the sector;
  • Improving statistics and information on the sector.