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Inclusiveness and competition in the microfinance sector can generate high payoff. This will not only give the borrower a no of options for raising debt, but also drive the costs down to raise them.

Proven Impact of Micro-financing

The effects of micro-financing trickling down to the poorest of Indians can already be observed in the Indian economy.

Improvement in Asset Position

The average increase in assets was about 72%, from Rs6,843 to Rs11,793 in real terms (in one to three years) in most of the households where micro-financing has been extended. Before given the credit, one in three households had no assets; after that, it changed to one in six.

Increase in Savings

While most households given micro-credits were having negligible or no savings, this improved to Rs. 160-Rs. 460 and in some cases, the average household savings rose to as high as Rs. 1444.

Changes in Borrowing Patterns

With improvement in above two factors, people were more ready to borrow from the semi-formal and formal sector rather than their traditional creditors i.e. friends and family, moneylenders, landlords.

Impact on income

The average net income per household increased from Rs 20177 to Rs. 26889.

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* Contributed by: -
Varun Ahuja,
Student Manager,
MBA (IB) - Finance,
Institute of Management Technology (IMT), Ghaziabad.