Market for 33 percent interest loans: Financial inclusion and microfinance in India

Abstract

Financial inclusion is the process of building viable institutions that provide financial services to those hitherto excluded. These may include savings, insurances, remittances, and credit. Microfinance became the most dominant method for achieving financial inclusion. However, different microfinance schools of thought recommend opposite ways for attaining financial integration. India is a particularly insightful case study due to the sheer number of people excluded from formal financial services, as well as the spectrum of actors and approaches. The aim of this article is threefold. First, defining financial inclusion, depicting its status quo in India and comparing it to its South Asian and BRICS peers using recently released data from the Global Findex database. Second, focusing on microfinance as the dominant vehicle for achieving financial inclusion by scrutinizing its definitions, contrasting its two leading "schools of thought" and analyzing the central role of its dominant group-based approach. Third, the article will examine why people opt to take micro-credit at 33 percent interest rates.

Towards an Asset-based Indicator of Poverty

“…The need to break out of this dependence on informal credit systems is reflected in the extremely high charges the poor are willing to pay for loans from formal microfinance institutions. Some estimates of the average of these charges in India put it as high as 33 per cent (Pauli, 2019). This level of deprivation is substantially greater than that of those who can avoid this forced indebtedness, even if their household consumption expenditure levels are not very different.…”

Statecraft and Foreign Policy

“…4 Policy solutions must address the interlinked challenge of poverty, inequality and climate change. Empowering women (Yadav & Lal 2018) and increasing access to financial services (Pauli 2019) are arguably essential to future policy solutions. Access to credit, insurance and saving accounts -also for direct transfer of welfare benefits and emergency relief -can help with climate change adaptation, such as to mitigate the negative impact of crop failure due to droughts or flooding.…”

Rural–urban financial inclusion: Implications on the cost sustainability of microfinance lenders

“…While there are many channels or means of attaining financial inclusion, microfinance remains an important tool among developing countries in recent years (Mader & Sabrow, 2019;Pauli, 2019;Sani Ibrahim et al, 2019). It is widely understood that financial inclusion through microfinance will enable poor people to access financial capital for business ventures without the conventional requirement of physical collateral.…”