Experts have called for incentivizing MFIs in order for the government to utilize their network, particularly in extreme rural areas


There remains no doubt whatsoever that MFIs have gone where regular banks do not dare to go. Over the years micro-credit lenders have developed an enviable network that connects much of rural India. Given the circumstances, it seems prudent that this network is used to push the government’s mandate of not just financial inclusion but also a cashless economy.

While the government has taken steps to launch Jan Dhan accounts for every Indian and more than 50 percent of India’s population has a bank account to its name, since 2014, only around 12 percent of these account holders made cashless transactions in the past year, finds a World Bank survey from 2017.

Bappaditya Mukhopadhyay, Professor of Economics & Finance at the Great Lakes Institute of Management, states that the agenda of a cashless economy can only be successful when more and more financial activities are done through these accounts, electronically. While the government already makes digital transfers of its subsidies and other payments, unless other transactions, beyond state-backed payments are made on these accounts, the agenda will not reach its full potential.

This is exactly, where MFIs have a role to play and that the government should properly utilise the vast network non-banking financial entities like VFS have developed over time. And the MFI network can be used as a stable platform to encourage cashless transactions in rural areas. While this will also serve the purpose of attaining widespread financial inclusion, the approach will need to be different Despite the presence of bank accounts, there have hardly been cashless transactions in rural areas. This opens up the space for a mechanism where MFI network can be used to promote cashless transactions and they suggest incentivising micro-lenders for that purpose.

MFIs like VFS have a widespread reach in rural areas and are often sole financiers for entire village communities, where most households, as well as local traders, are their clients. If MFIs are incentivised in lieu of utilising their network, micro-lenders can, in turn, develop and maintain a network of cashless transactions. In order to achieve this, the government can come up with any innovative scheme like providing the MFIs with certain percentage of all cashless transactions in its network.

This will give a major boost to the government’s financial agenda, since more than 200 million households across India are connected to microfinance institutes. The MFI rural network is the perfect platform to promote financial inclusion, once the systems and processes for the incentive programme are in place.


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