Does India Need a Micro-Finance/Financial Inclusion Policy?

Ramesh S Arunachalam

Rural Finance Practitioner

There has been a lot of talk about microfinance and financial inclusion in India, especially during the last few years. Especially during the last 6 months, the discussions have centered around having an appropriate regulatory framework for microfinance, scaling up financial inclusion, the need for a sole microfinance regulatory and the like.

As before, every one (and this writer included) have been talking about these aspects, often providing their rather divergent and diverse views. But, it seems to be that, we are again running off, without serious thought to:

·        What we see as part of financial inclusion and/or micro-finance in India and why?

·        What has worked on the ground with regard to financial inclusion and/or micro-finance in India and why/why not?

·        Going forward, what is our vision with regard to the various financial inclusion and/or micro-finance services in India?

·        What do we hope to achieve with scaling up financial inclusion and/or micro-finance in 5 years, 10 years, and 20 years and so on?

·        And Other Questions as Appropriate

Unless, we have a clearly defined national micro-finance/financial inclusion policy answering the above and other questions, our responses to delivering/scaling up low-income financial services will continue to be knee jerk and piecemeal. Interim solutions are undoubtedly necessary as life has to go on but we need to critically look at medium and long term issues as well

Therefore, even before we look at building a PERMANENT regulatory architecture for micro-finance/financial inclusion (through some mechanism and/or a bill etc), let us first look towards devising a national policy for micro-finance and financial inclusion - a policy that is holistic, futuristic and yet practical (in terms of satisfying unmet ground level needs of low income and excluded people) and developed through a TRULY bottom up and democratic process with widespread stakeholder input and consultations. The aspect of having a bottom up and democratic process is very critical to create strong ownership for the policy and adherence to its vision during implementation.

Further, such an approach cannot be a mere document – designed in Delhi or Washington (with all due respect) and - produced through field visits by few important consultants/agencies to select field areas. It has to be truly national in character and must be backed by public interactions with low income people in all parts of the country apart from district, state, regional and national level consultations among various stakeholders. It has to be comprehensive enough in terms of bringing together different and competing models with alternative aspirations. And last but not the least, it must be grounded in reality so as to make a SOLID difference to the lives of the people, for whom it is being framed in the first place…In other words, it just cannot be a writing exercise…

It is about time that we follow the lead of many (other and especially, smaller) countries that have genuinely tried to frame appropriate micro-finance/financial inclusion policies through a proper process. That alone can ensure the orderly/sustainable growth of the Indian micro-finance/financial inclusion sector and simultaneously enable low income people to become a REAL part of the inclusive growth story…The key question here is whether we have the commitment and courage to undertake such an important and urgently required task, in a voluntary and selfless manner…Time alone will provide the answers…

Jai Hind!

Have a Nice Day!