Kuldip Maity

MFIs, by the very nature of their operations, play a key role in three aspects of social life and development, despite being financial entities. Not only do MFIs help underprivileged households meet basic needs, they also provide the financial support to improve their overall economic condition, and above all else, empower women, particularly from rural backgrounds, to go beyond their usual roles of home-making to turn entrepreneurs.

By creating access to productive capital, MFIs help women to not only elevate the condition of their consumers, but also other women, who subsequently find employment through such entrepreneurial women.

Immediate noticeable effects of supporting an entrepreneurial woman are access to better nutrition and better lifestyle for their family members, along with better education for their children. The confidence a woman gains with financial support from MFIs helps them boost their sense of dignity and empower them to participate in improving not just their economy condition but also their society standing.

Being a frontline microfinance provider, VFS has been also helping women through various literacy campaigns to make them self-sufficient as well as financially stable even in extreme rural areas. The financial awareness such women pick up help them develop a financial road map to identify what she earns, what she spends and what she owes. In a nutshell, MFIs have played a significant role in combating both poverty and gender inequality.

A Voice of America report from March 2013 found that while at around 26 percent, number of employed rural women in India is lower than developed countries, the situation has significantly improved, and this has happened with the help of MFIs. Loans from MFIs have not only helped earn money, but also given them a voice. In many parts of the country, such entrepreneurial women have joined forces to fight social evils like alcoholism among the men in their households. The VoA admitted, in its report, that, unlike commercial banking channels, MFIs focus more on promoting gender equality than on profits, pointing out that society witnesses positive changes when women get empowered.

The impact of technology, particularly the digital platform and mobile telephony is plain to see all around us, the effect of which is perhaps most prominent in the financial world where digital avenues have helped us reach even remotest areas.

While the government’s boost on digital payments has emerged as an added advantage, for MFIs like VFS, the digital platform has come across as a great way to gain ‘last mile access’. Although financial institutions are facing some cost challenges in providing services to remote areas, it is undeniable that the financial services landscape is undergoing a tectonic shift in India due to digital technologies.

This paradigm change found endorsement in a 2016 report from the Asian Development Bank Institute (ADBI), which noted that India’s financial inclusion agenda has witnessed a ground-breaking change over the last decade, “moving away from the emphasis on credit to a more comprehensive approach toward financial services”, particularly in moves like opening bank accounts and offering basic financial products, such as insurance. While making its observations, the report noted that despite having a well-regulated financial system, India had one of the lowest percentages of household deposits even till 2013-14 but things have started to look up.

Bappaditya Mukhopadhyay, Professor of Economics and Finance at Chennai-based Great Lakes Institute of Management, noted in a research paper that cashless transactions can be encouraged by ensuring that payments, even the subsidy transfers made by the government, needed to be made directly into the bank accounts of recipients. He felt that leveraging the MFI network would go a long way to encourage cashless transactions in rural areas. Mukhopadhyay stressed on the need for a mechanism to incentivize the cashless network in order to attain greater financial inclusion through cashless instruments in rural areas and it is in this context that MFIs come out as a major contributor.

Mukhopadhyay cited a World Bank report to explain that while the Pradhan Mantri Jan Dhan Yojana has gone a long way to have bank accounts opened even for the rural poor, in order to integrate digital technologies with the objective of financial inclusion, we would need efforts towards a cashless payment system. And this can be done if cash inflows are made directly into these bank accounts even beyond credit benefits from the government. This could help in better financial inclusion by incentivizing financial entities like MFIs for cashless transactions, given that they service more than 200 million of the target rural households.