Microfinance in India-Design, Structure and Governance

Design, Structure and Governance K Kaladhar Indian microfinance is vast and basically rural (and semi-urban) in character The ongoing financial sector reforms have focused so far on strengthening bottomlines without taking into account the rural microfinance dimension, Financial market liberalisation has, thus, not yielded results that are effective in improving microfinance transactions. Developing microfinance markets involves removing imperfections that have wrongly been assumed to be policy-induced, hence the ineffectiveness of the present frame of financial market liberalisation paradigm. It is to be realised that these imperfections actually arise from structural and institutional rigidities of microfinance markets. The new institutional economics offers us some insights for removing these imperfections, In the next leg of reforms it is imperative that measures are initiated to address these concerns by properly internalising the nature and content of microfinance and focusing on policy stance, restructuring, design features and governance in the light of perspectives from institutional economics.