Macro View on Microfinance

Historically, the state has been seized of the issue of access to financial services to the poor. A review of the initiatives of the past century shows that the concerns about making financial services to the disadvantaged sections of society are articulated largely by the state. These articulations can be found in the form of (a) seeking inputs for policymaking by setting up study groups, committees, com­missions, working groups, and the like; (b) institutional interventions in setting up new forms of organisations and new initiatives in existing organisations; and (c) intervention in the operations of institutions by directing them to serve a section of the society through quotas, orders, notifications, schemes and subsidies.

While these initiatives were happening, the State was never satisfied about the penetration of these services and was looking to reinvent solutions to the problem. However, what was striking in the century-long interventions was that the initiatives came from the state in state-owned, state-controlled organisations. Till recently, there was an absence of the private sector in this space. Thus, most solutions were supply-side, welfarist solutions – not many were market-based. The history of intervention in financial services targeted at the poor started with the active participation of the state. A wave of initiatives through state-partnered and state-promoted cooperatives followed. This was followed by the nationalisation of banks and ­establishing regional rural banks. On the policy side, there were targets for the flow of financial services to certain sections of the economy.