The primary clientele of MFIs like VFS are women. In fact, MFIs like us provide credit only to women because women, when empowered, have the capacity to improve the financial condition of not just their immediate family but also other women around them. With data revealing that even now only around 26 percent women in India are employed, particularly when most women in rural areas cannot even think of stepping out of the house, MFIs like us have worked to change the situation substantially. Several studies and surveys by leading consultancy firms and financial institutions have pointed out that while as much as 99 percent of MFI borrowers are women, more than 90 percent of them showed signs of improved financial condition after they got associated with a MFI and launched their enterprise.

Over time, they have not just improved things for themselves but also for their families, particularly for their daughters, but also for women in the neighbourhood. Statistics reveal that following their association with a MFI, the resulting combination of enhanced income and improved decision-making helped them to access better amenities at their households. Access to toilet facilities at home jumped, as did other modern tools of communication like television and cell phones.

Almost all these women showed an increase in confidence they had never thought would be possible, otherwise. In fact, most of them started receiving better treatment and even respect within the family. As women turned entrepreneurs, they helped uplift other women around them by providing them with employment, who in turn, started having better access to healthcare for their family, started speaking up in favour of better education for their daughters instead of getting them married off at an early age, and most of them devised a financial road map to identify how much they can earn and spend, making their financial literacy complete.

Studies by Sa-Dhan, the self-regulatory body in India for microfinance, found that annual savings of women associated with MFIs showed a marked improvement, even after factoring in an annual rate of inflation. If MFIs helped women in rural areas to change their own lives and provide some kind of upward mobility to both their own families and also to other women around them, then this was also possible because a large percentage of women started their own business after joining a MFI.

Bankers, policy-makers and analysts have all accepted the need for financial literacy and its significance in the road towards wider financial inclusion. The practicalities of this belief have been further reinforced by studies on financial literacy initiatives and the financial needs of poor households at different points in time. The Reserve Bank of India, which has declared June 5 to 9 as ‘Financial Literacy Week’, with its announcement stressed on the need for financial literacy, which it admits, will bring forth financial inclusion for larger sections of the population.
While it has received a near-universal nod that MFIs make the perfect conduit in the process of financial inclusion, particularly in rural areas, microfinance providers have gained a position of prominence in policy documents and has gained more legitimacy with the government in their role as a pioneering force for providing financial inclusion. While this has found reflection in MFIs getting more mention in important policy documents, MFIs have also achieved success in initiating a form of social engineering that is not always noticed.
MFIs like VFS play three important roles in the process towards financial inclusion — helping impoverished households to meet basic needs, working on improving the overall economic situation of the household, and helping to empower women by supporting their entrepreneurial efforts with easy loans — that help create access to productive capital. This, when put together with human capital and mixed with education and proper training, can enable people to move out of poverty. MFIs also help in social engineering because simply by providing capital to a woman, her sense of dignity is strengthened and encourages them to empower others like themselves in turn, playing a positive role in the economy and society.
While this has received wide acclaim that spreading financial literacy is the first step towards wider financial inclusion, microfinance institutions have shown that in India, microfinance is not just a tool for financial inclusion. Even though the mission started off as one to include those people who are not serviced by commercial banking channels by providing them with unsecured loans, over time MFIs have turned out to be a conduit for social change, particularly in a country like ours, where a large percentage of the population live in poverty. VFS, being a leading MFI, runs several financial literacy programs, using these platforms to help individuals become self-sufficient so that they can have financial stability even in interior-most rural areas.

For India, a country of 1.3 billion, financial inclusion can be a difficult job but the idea of loan waiver following natural calamities do not always seem prudent and could cause a drain to the nation’s funds. Instead, the government could seriously explore having financial inclusion as a fundamental right, and like every right, should come along with a duty for citizens receiving its benefits. Despite the Central government’s best efforts, nearly 50 percent Indians still do not have bank accounts and only around 15 percent have access to formal credit lines, the need for wider financial inclusion has become imperative.

The RBI itself has recognised the need for financial literacy and its importance in the process of financial inclusion, following a number of studies by several top notch institutes. The Asian Development Bank Institute, the top financial institution’s research wing, has found in a 2016 study that “despite the existence of a large and well-regulated financial system dominated by commercial banks”; India’s record of financial inclusion is poor. According to data quoted by the ADBI, India is lowest in the region when it comes to the ratio between household debt and GDP.

The ADBI further noted that the lack of inclusion is particularly noticeable in rural India, where nearly 60 percent Indians live. Data from 2013–14 revealed that deposit per head was around Rs 9,200, with credit standing at about Rs 6,000 per head. This is primarily due to underrepresentation of formal banking channels in rural areas, even though experience has demonstrated that the rural poor repay “uncollateralized loans reliably and are willing to pay the full cost of providing them” because to them “access is more important than cost”. Interestingly, despite being part of the urban population, groups like migrant labourers do not have access to the formal financial sector.

The ADBI found that lack of inclusion is also noticed in the inadequate number of bank branches and ATMs in rural areas, where number of bank branches per 100,000 people is around one-third of that in urban areas and just around one-tenth when it comes to ATMs. Analysts and experts, however, noted that in recent times, with proliferation of mobile telephony and cheaper access to data plans is spearheading a tectonic shift in India, in terms of last mile access to financial services. While the trinity of Jan Dhan accounts, Aadhaar cards and mobile telephones has created an ecosystem that is gradually empowering people in rural areas to have better access to basic financial services, the cost of providing services to these areas come with significant challenges for financial institutions.

Over the last few decades that microfinance has been involved with raising awareness about financial transactions and proper savings, particularly among the mostly uneducated rural populace, MFIs have become an integral and crucial part of India’s growth story. Not only have MFIs helped in reaching people in the most interior parts of the country, the ease of formalities has also given microfinance an edge over formal banking channels.

Now that microfinance has proven its viability as a business model, besides its ability to reach out to a significant section of the population, who have been left out of the financial mainstream for years, the financial platform has emerged as a relevant and important catalyst for providing financial services to those who have been hitherto overlooked by former banking channels. While the Central government’s thrust on including almost every Indian within the ambit of banking has helped increase financial literacy, much still needs to be done, given the size of the land and its large population.

While microfinance has a crucial role to play in this, MFIs have already been helping to take formal credit support to rural people, particularly women. In most cases, banks have tended to bypass this population for decades because of the inherent vulnerability of the customer base, with a number of risks involved, including natural calamities. MFIs, however, have addressed these risks head on and have reached households, which were hitherto deprived of a formal credit line. With MFIs mostly dealing with women, either with existing enterprise or with skills to launch their own enterprise, the rate of return is often much higher than even in formal banking channels.

Financial analysts believe that the key areas where MFIs should focus in order to have a stable and prudent growth of the overall sector is to continue playing its role as an agent of change by further pushing for financial inclusion, besides strengthening credit discipline and repayment, making more out of its operational costs through use of technology, and by strengthening its commitment towards self-regulation. Taking care of these issues, which are already being addressed by those in the sector, can lead to the inclusion of every Indian, who needs financial services. Instead of just resting on their laurels, MFIs should continue to take steps that would help them become a significant force within the financial sector, in the process helping the nation to decrease economic disparity and move towards further development.

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