Let’s not conflate microfinance with self-help-group financing

livemint.com:

RBI) to revise the regulatory framework (March 2022) for it and also caution it against an exclusive focus on business growth (November 2022). What remains in question, though, is whether RBI’s revised regulatory framework addresses the moral charge it seeks to impose on the industry. Thus, it wasn’t surprising for us to see the CEO of Sa-Dhan write an op-ed in April 2023 that spoke of some hurdles faced by microfinance institutions (MFI) in their search for growth.

There appears to be a divergence in the way RBI and Sa-Dhan view MFI growth. While RBI sees the prioritization of growth as misaligned with the promise of microfinance—which ought to act as an economic development aid, help eliminate poverty and empower women—Sa-Dhan sees such expansion as an essential condition for those very aims to be realized. This divergence is clear once we note that RBI is cautioning against a kind of growth that would pile on even more debt on the already-indebted, whereas Sa-Dhan is calling for greater geographical expansion and taking formal credit to places where it’s yet to create an impact.

But the clarity emerging here is logical rather than substantive. For, it begs the question—can the form that MFIs have grown to assume thus far, and are likely to reproduce in new geographical areas, be considered an unmitigated blessing? If the answer is no, then we are back to the moral charge and scepticism about growth. A possible way forward is to start with a critical distinction between self-help groups (SHGs) and MFIs.