Microfinance in South India: A Case Study

Microfinance is a novel economic development tool aimed at alleviating poverty through financial inclusion, socioeconomic empowerment, and self-sufficiency. By virtue of a large and poor population, India is one of the largest microfinance markets in the world, and having recently confronted a fundamental moral question related to the mission of the field, presents an interesting area to study. Most press and research coverage focuses on microfinance in Andhra Pradesh due to a high microfinance penetration rate and recent events, but this paper aims to focus its study on the microfinance sector in the South Indian state of Kerala, distinct from the rest of India due to a unique cultural and regulatory environment relative to microfinance sectors in the rest of the world. This research is primarily structured as a qualitative survey conducted through travelling to rural villages in the state and interviewing officers, administrators, and beneficiaries to analyze competition in the sector, understand whether it is successful in its mission of poverty alleviation and empowerment, and compile a list of success factors that can be applied elsewhere. The central conclusion is that microfinance is highly culture and context-specific, with Kerala’s communal culture and welfare state being key drivers for the sector’s success. In this specific situation, the non-profit orientation and bank linkage models enable institutions to focus more thoroughly on their mission statements, as evidenced by their demand-led convergence model of attacking poverty through several different community development initiatives. This case study also presents an interesting angle on government involvement in the microfinance sector, as subsidies have fostered the sector’s growth while simultaneously subjecting the sector to a high degree of political risk.