Microfinance needs structural reforms

Analysing its impact on poverty alleviation is only possible when grassroots data is collected; AI and data science hold the key to revolutionise the sector

- JAGRITI BHATTACHARYYA

MICROFINANCE HAS BEEN the darling of international development and viewed as a tool for poverty alleviation for long. Pioneered by Nobel-Prize-winning Bangladeshi economist Muhammad Yunus in 1976, microfinance began with lending small sums of money to women to develop their own businesses, who then repaid the amount in full.

From its humble beginning in the 1970s in Bangladesh, microfinance—considered the most effective way of reaching those at the bottom of society—has today expanded its reach to countries worldwide. Yet, despite its burgeoning portfolio, a growing volume of academic research suggests that microfinance has produced little evidence, if at all, of any sustained impact in improving the lives of the poor.

The spate of harassment and tragic suicide cases reported widely in the media from different parts of the country is bringing the limelight back on the fundamental purpose of microfinance. The latest financial stability report of the Reserve Bank of India (RBI) pegged the sector's share of overdue loans (between 31 and 180 days) as of September 2024 at 4.3%, which shows an increase from the 2.5% recorded at the end of March 2024.