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MICROFINANCE: A TOOL FOR POVERTY ALLEVIATION
Abstract: The paper aims to study the evolution of the Microfinance revolution in India as a powerful instrument for poverty alleviation. However the viability of microfinance is yet to be justified because of an uneven trade-off between outreach and sustainability of its products. Social businesses like microfinance, due to their sensitive client base, need to walk a fine line to balance their commercial interests with the social and moral expectations of a wide variety of stakeholders. Indian microfinance institutions (MFIs) have done an admirable job of managing the commercial side of their business; yet they have often struggled to manage the inherent contradictions of running such businesses at scale while satisfying non-commercial stakeholder. This paper outlines the three distinct aspects where government needs to play a role. The first is to protect the rights of the micro-borrower, the consumer of micro-financial services. The second is that of prudential supervision of risk-taking by firms operating in microfinance, since this could have systemic implications. The third is a developmental role, emphasizing scale-up of the microfinance industry where the key issues are diversification of access to funds, innovations in distribution and product structure. The paper brings out the missing link of impact assessment in the Indian context, which is a precondition for poverty reduction on account of the influence of new paradigm of Institutional viability under commercial microfinance.
Keywords: Microfinance, Poverty Alleviation, MFI’s, Commercial Microfinance, Rural Finance