The Indian economy is one of the largest in the entire world with the past decade seeing robust growth for the country. However, despite the high growth in the overall GDP of the country, the GDP per capita remains low. Many people in the country still operate on a meagre income and lay below the poverty line. In order to alleviate people from poverty and allow them an opportunity to establish their own business, MFI in India will play a major role. The huge base population makes it impossible for mainstream lenders to reach all the population, microfinance industry provides the service where mainstream banks are unable to.
Why is the Microfinance industry the key to unlocking rural wealth?
The Indian growth story is famous around the world and the metro cities in India are leading the growth story. However, the majority population of India still relies upon the rural area. According to the IMF’s Fiscal Monitor, there are 120 million individuals in India who can be classified as extremely poor. According to the World Economic Forum, it would take no less than seven generations for India’s poor to attain mean income.
One of the pressing reasons for the large number of poor in India is the lack of access to capital or credit.
MFI institutions in India such as Fusion Microfinance, Equitas Small Finance Bank, Asirvad Microfinance, etc. are reaching out to such personnel and providing them with the means to improve their own future. The lack of availability of credit and reliance on the unorganized sector often deters such personnel from establishing any meaningful business. With the presence of the largest MFI in India in all the areas of India, the chance of unlocking the credit and potential of rural India is possible through MFIs.
Exploring untapped areas:
Apart from the rural area being targeted by MFIs, MFI institutions are also providing confidence to females and housewives to step out of the house and utilize their skills. Data between 2001-2009 indicates that females are amongst the largest proportion of borrowers from the Microfinance industry. With large family sizes and limited income, rural families often struggle to make ends meet. The availability of finance to housewives will encourage them to work and create an additional source of income for their family thus leading to the Indian growth story.
The Meta-effect:
Children from poor families are often forced to give up on their education and start working at an early age to support their families. The provision of finance to the families and the possibility of the female members to assist in the income decreases the burden on the children. This would allow them to complete their studies and either further uplift their small business or take up a job in a big company. The availability of finance through MFI institutions has a meta impact on the ability of the children to study and get a good education.
The artisans and the small-scale industries of India flourished centuries ago and were a key part of the growth of India. Through MFI institutions, India has an opportunity to unlock its potential again and lead the next round of growth stories in India. The MFI industry is expected to grow at the rate of 40% until 2025 despite the halt due to COVID. With such high expected growth and easy availability of finance, MFI can finally unlock the rural growth and wealth in India.
