Microfinance offers an innovative approach to poverty alleviation by encouraging self-reliance, fiscal inclusion and social empowerment regardless of socioeconomic position. One of the largest markets for microfinancial activity is India, with its huge population and high incidence of poverty. While it is mostly presented in a positive light, microfinance also invites heated discussion of core moral issues.

A fascinating paper written by Arjun Bhaskar from the University of Pennsylvania in 2015 examines the microfinance arena in the Indian state of Kerala. Bhaskar’s research consists of a survey-based qualitative examination of the microfinance sector in rural Kerala villages. He traveled across the state and interviewed officials, administrators and borrowers to get an indication of the level of competition in the sector and to assess whether microfinance has successfully relieved poverty and strengthened the population. The study further attempts to identify the factors that lead to positive outcomes in order to apply them in additional geographic areas.

One key conclusion of the study is that it is difficult to produce general recommendations for microfinancial success as the cultural and political context play a highly significant role. In Kerala, for example, the communal culture and strong welfare system, are essential to the success of the microfinance lending system. The philanthropic atmosphere and the cooperative approach of the local banks make it relatively simple for microlenders to maximize their potential and stay on task – they can quite easily address poverty and empower the local population by developing a variety of community projects and supporting small businesses.

The Kerala case study also sheds some light on the relationships between government and microfinanciers, and raises imperative questions regarding this issue – Is an engaged government beneficial to the microfinance sector? Is the financial support provided to microfinanciers by the state worth the political risk it involves?

Read the full study for a deeper and more detailed perspective on this complex situation.

The full article was original published in the Wharton Research Scholars Journal in April, 2015.

case study - india