The Commercialization Debate : A Contextual Study of Microfinance in India

Abstract: Within the field of microfinance, there has been an ongoing debate about whether microfinance institutions should be commercialized. One side argues that a business that very much can earn profits at the same time as it helps the poor, is not justified to receive charity, but should be run with the risks and benefits of any other profit-seeking business. The other side argues that the outreach to the ones who most need microfinance, is severely hampered if firms are profit-seeking; arguing that they only target the individuals who allow them to make profits.   This study is a case study based on India, one of the world’s largest nations, and home to millions of people living below the poverty line[1]. Microfinance is widespread in India, and with one of the researchers speaking Hindi, India became our choice of case study. A grounded theory methodology is applied in order for us to learn as much as possible about the context of microfinance in India. Within the context, we look for the mission and the impact of the various institutions. Analysis is done through the constant comparison method; with comparisons within and between different organizations. Each organization is individually analyzed to find recurring themes, always being open to the emergence of new themes. Then, the organizations are compared with others of the same legal form, and finally with all other forms of organizations.   Several different kinds of institutions are identified, working directly or indirectly with providing small loans to low-income individuals. These institutions include banks, local area banks, section 25 companies, NGOs, and cooperative societies. Each one of the institutions has, by law, different areas of restriction and the study finds that the missions of the various organizations can be linked to their legal form; the mission indicating which form they currently operate under or which legal form they are striving to achieve. The major difference between the various legal forms is their methods of accumulating finances, and how they manage their revenue. Although banks actually earn profits, they have not yet been fully commercialized, as they are restricted from attracting mainstream international capital.   The conclusions indicate that in India, microfinance has not reached the point where it has been fully commercialized, but rather the passion for their work and visions of the founders very much guide the work of the various organizations. This can be seen in the missions that guide the organizations and the services provided to fulfill the mission. Commercialization is however, far from a non-issue. If legislation regarding IPOs is changed, the level of commercialization and competitive scene for microfinance in India could change dramatically. [1] Can be measured in different ways, but used here symbolically, indicating a very low amount; discussed in more detail in the paper.