Much Still to Do: Microfinance and the Long Journey to Financial Inclusion in India

Review of ongoing efforts to promote responsible inclusive finance
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After the fireworks of demonetization in November 2016, the reality remains that most people in India still rely on cash and the informal economy for their survival. Risks to micro-entrepreneurs are high but so are potential rates of return to their investment, and economic prospects hinge on being able to mobilize and manage liquidity. Under the Poorest States Inclusive Growth (PSIG) Programme, the UK Department for International Development is working with the Small Industry Development Bank of India (SIDBI) to promote responsible microfinance and financial inclusion in the under-developed states of Uttar Pradesh, Bihar, Madhya Pradesh and Odisha in north-central India.

This briefing paper draws on a mid-term study of this six-year program (2012–2018) to review the ongoing efforts in promoting access to financial services and inclusive growth across India. It provides a brief overview of recent sector trends and initiatives, starting with regulatory responses to the Andhra Pradesh (AP) crisis in 2010, taking in the demonetization saga, and looking ahead to the establishment of a new class of small finance banks. It then reports on findings from a concurrent evaluation of the PSIG Programme. This confirms that MFIs have been growing rapidly in the poorest states on the back of often high rates of return to micro-enterprise investment.

About this Publication

By Sinha, F., Sinha, S., Copestake, J. , Arora, S.