Microfinance and the State: Exploring areas and structures of collaboration

This paper examines the role of state in reaching out financial services to the poor in India. The current players in reaching these services include the formal banks and co-operatives. In addition, there are several voluntary efforts that are being undertaken to ensure that financial services reach the unbanked. The paper then examines the role of the state. The role of the state is seen in three segments – direct, participatory and regulatory aspects. The paper argues that the present structuring of aid to poor and to the rural areas need to be relooked. It argues under its direct role it should put in generalized aid that goes towards aspects that affect the population at large – like creating infrastructure, providing information and access to markets. On the partnerships, the paper argues that all aid aimed at reaching individuals has to be routed through partner institutions which take up assessments on a professional basis, so that the relationship built with these institutions continue much beyond the one time dispensation of aid. It argues that this would minimize patronage dispensation by parties who are not a part of the implementing agency. Based on the current scan of the players in the market that serve the poor, the paper also suggests regulatory interventions at the policy level.