Commercialization and Mission Drift in Microfinance: Implications for Rural India

Kaustav K. Sarkar () and Rukmini Thapa ()
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Kaustav K. Sarkar: C/O-FMOD, RESERVE BANK OF INDIA, MAIN BUILDING, FIRST FLOOR, SBS MARG, FORT, MUMBAI 400001, INDIA
Rukmini Thapa: PH.D, CENTRE FOR THE STUDY OF REGIONAL DEVELOPMENT, JAWAHARLAL NEHRU UNIVERSITY, NEW DELHI 110067, INDIA

Asian Journal of Agriculture and Development, 2020, vol. 17, issue 1, 15-29

Abstract: The emergence of microfinance has been justified as a measure to occupy the empty space that was created with the retreat of formal banking as part of structural and neoliberal reforms for rural India in post-1990s. Worldwide, although the microfinance institution (MFI) has been flouted to provide credit to unbanked areas with the broader objectives of empowering people and eventually eradicating poverty, there is much disagreement among scholars regarding its actual achievements toward these goals. While some scholars are of the opinion that MFIs are currently in a phase of “mission drift†, based on their increasing commercialization, others argue that these institutions have been always driven by the neoliberal principles of maximizing profit. In view of the globally demonstrated changes in the features and operations of MFIs, this paper uses evidence from secondary data sources to flag the changing trends in credit market with particular reference to MFIs in India. We argue that these changes provide evidence of a mission drift in microfinance that must be critically examined against the backdrop of a chronic and persistent credit crisis in rural India, which may get further exacerbated by the increasing dominance of private credit players. At this juncture, instead of taking lessons and rectifying the existing lapses in enabling rural credit, the reorientation of the MFI’s credit-delivery operation toward commercialization must be seen as a perilous step that could close the door of affordable credit to poor and petty borrowers. Chronic bottlenecks in credit delivery must be addressed through more permanent and holistic solutions.

Keywords: India; mission drift; microfinance; for-profit microfinance institutions; commercialization (search for similar items in EconPapers)
JEL-codes: G21 O12 O53 (search for similar items in EconPapers)
Date: 2020
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