Financial services to the poor: the microfinance dilemma in Andhra Pradesh

ABSTRACT

In India, microfinance and associated strategies of forming self-help groups came about in response to a newly independent nation and its need to include the rural non-banking population into national structures of development and governance. This article examines how the rapid growth of microfinance institutions during the last two decades – especially in the context of the more recent transition from non-profit to for-profit non-banking finance companies (NBFCs) – has led to a significant increase in the delivery of financial services to the rural poor. In Andhra Pradesh, the simultaneous existence of some of India’s most prominent microfinance institutions (MFIs) and their mobilisation of self-help groups – with state backing and linkages to banks leading to relatively easy availability of funds – has led to a tremendous surge in the availability of credit across the state.

En Inde, le microfinancement et les stratégies associées de formation de groupes d’entraide sont nés dans le contexte d’une nation ayant récemment acquis son indépendance et de son besoin d’intégrer les populations rurales privées de services bancaires dans des structures nationales de développement et de gouvernance. Cet article examine la manière dont la croissance rapide des institutions de microfinancement durant les vingt dernières années – en particulier dans le contexte de la transition plus récente d’entreprises non bancaires de financement à but non lucratif à des entreprises non bancaires de financement à but lucratif – a abouti à une augmentation considérable de la prestation de services financiers aux pauvres en milieu rural. En Andhra Pradesh, l’existence simultanée de certaines des plus importantes institutions de microfinancement (IMF) de l’Inde et de leur mobilisation de groupes d’entraide – le soutien de l’État et les liens avec les banques donnant lieu à une disponibilité relativement facile de fonds – a abouti à une disponibilité de crédit très accrue aux quatre coins de l’État.

En India, con el propósito de responder a la aspiración de un país recién independizado de afiliar a la población rural sin acceso a la banca a estructuras nacionales de desarrollo y gobierno, se implementaron las microfinanzas y las estrategias asociadas a éstas, para contribuir a la formación de grupos de autoayuda. El presente artículo examina la rápida expansión experimentada por las instituciones de microfinanzas durante las últimas dos décadas —especialmente en un contexto en que las compañías financieras no bancarias (cfnb) dejaron de ser no lucrativas para convertirse en lucrativas— con el consiguiente aumento significativo en el acceso a los servicios financieros que tuvo la población rural de bajos recursos. En el estado de Andhra Pradesh, la presencia simultánea de varias de las más prominentes instituciones de microfinanzas (imf) de India y sus esfuerzos destinados a impulsar grupos de autoayuda —con el respaldo del Estado y vínculos a otros bancos—, ha significado un elevado acceso a fondos, determinando que exista una enorme disponibilidad de crédito en todo el estado.

KEYWORDS:

• Labour and livelihoods – Microfinance, Poverty reduction
• Technology – Media
• Civil society – NGOs
• South Asia

Acknowledgements

The author would like to thank Dr Franklin Yartey for his assistance when he was Radhika Gajjala's doctoral student at Bowling Green State University.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. SKS Microfinance, founded by Vikram Akula, is a for-profit NBFC that provides credit and insurance to the poor – especially women.

2. Financial inclusion has been defined as the delivery of credit and other financial services at an affordable cost to the vast section of disadvantaged and low-income groups. The idea behind financial inclusion programmes is that access to affordable financial services, especially credit and insurance, increases livelihood opportunities and empowers the poor to take charge of their life.

3. Modern, institutionalised microfinance as different from historical community based practices of microlending through time – such as seetu practised by Sinhalese women in Sri Lanka and esusu as practiced by Caribbeanwomen – that map their origins to traditions of money pooling, cooperative money management, and money exchange within their local communities, rather than through formal modern banking-related institutions which administer and facilitate microfinance.