Microfinance will keep growing in importance in the days to come, as it has in the days past. Microfinance has grown from being just an instrument in poverty alleviation to the fuel for a national aspiration — the aspiration of being atmanirbhar or self-dependent.
To be atmanirbhar, as the Honourable Prime Minister, Mr. Narendra Modi, has said, is not about being inward-looking. It is not about living in isolation in the global market. It is about strengthening the industrial frame of the nation. Being atmanirbhar, as the mission describes, is about exploiting entrepreneurship across the economic pyramid.
But the challenge is to provide financial muscle to entrepreneurs way down in the pyramid, who do not have easy access to the traditional channels of finance. Microfinance institutions are playing a significant role in keeping these entrepreneurs moving and growing.
The government is using the Small Industries Development Bank of India as the main source of funds, and MFIs as the channels of disbursement. Under the portfolio risk fund, the government provides the bulk of the security deposit that SIDBI requires from borrowing MFIs.
One should remember that within the conventional channel of loans to industry, lenders consider the smaller enterprises as very high-risk. Lacking the financial muscle to provide the collateral required by conventional channels such as banks to offset the risks that the loans entail, the smaller enterprises have no easy way of accessing funds for business.
Lack of funds not only hampers growth; it also prevents entrepreneurial potentials to play out. This is where the microfinance channels have stepped in to help. Why has the channel become so crucial?
Those who are small do not have the expertise in the efficient deployment of funds. With MFIs going to their doorstep and handholding them in using the borrowed funds, the financial transaction goes beyond a mere business engagement. It becomes a personal bond.
That’s where the microfinance industry scores in addition to providing easy access. And that’s why the microfinance industry will be a significant provider to the national dream of emerging on the global industrial theatre as a contender to reckon with. The microfinance industry will be the source of funds to enterprises in the last mile.
[The Author of the article is Kuldip Maity, MD & CEO of Village Financial Services (VFS)]