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The Indian Microfinance Experience - Accomplishments and Challenges

Rajesh Chakrabarti

Wadhwani Foundation

Microfinance is gathering momentum to become a major force in India. The self-help group (SHG) model with bank lending to groups of (often) poor women without collateral has become an accepted part of rural finance. The paper discusses the state of SHG-based microfinance in India. With traditionally loss-making rural banks shifting their portfolio away from the rural poor in the post-reform period, SHG-based microfinance, nurtured and aided by NGOs, have become an important alternative to traditional lending in terms of reaching the poor without incurring a fortune in operating and monitoring costs. The government and NABARD have recognized this and have emphasized the SHG approach and working along with NGOs in its initiatives. Over half a million SHGs have been linked to banks over the years but a handful of states, mostly in South India, account for over three-fourth of this figure with Andhra Pradesh being an undisputed leader. In spite of the impressive figures, microfinance in India is still presently too small to create a massive impact in poverty alleviation, but if pursued with skill and opportunity development of the poor, it holds the promise to alter the socioeconomic face of the India's poor.

Number of Pages in PDF File: 22

Keywords: India, microfinance

JEL Classification: N25, G15

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Date posted: January 18, 2005  

Suggested Citation

Chakrabarti, Rajesh, The Indian Microfinance Experience - Accomplishments and Challenges. Available at SSRN: http://ssrn.com/abstract=649854 or http://dx.doi.org/10.2139/ssrn.649854

Contact Information

Rajesh Chakrabarti (Contact Author)
Wadhwani Foundation ( email )
315 CR Park
New Delhi, New Delhi
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