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Since liberalization in the early 90s, site the growth of Indian economy has been skewed towards services. This was a paradigm shift from the erstwhile agricultural economy that India was known for. The poor and marginalized communities got many opportunities opened up for them and soon advancements in microfinance product offerings played a key role in reviving their fortunes. The sector brought the confidence back to the rural poor farmers by uplifting them financially and non–financially. At ESAF, 44% of the loan portfolio caters to the agricultural sector and 22% to diary and horticulture. Apart from that, we give training to educate and develop the farmers' skills and help to find market for their products. Leadership development training and training on health are other value added benefits we offer. Also we network with Government organizations to distribute seedlings to aspiring farmers. Thus microfinance plays a significant role in the growth of Indian economy.

Despite this significance, most MFIs in India are struggling for capital and are fed mainly by social oriented investors. The recent hike of Capital Adequacy ratio to 15% also compounded the problems. While it is important to protect the financial security of the clients, issues, like high operating costs, cost of raising funds and challenges in raising capital (for MFI practitioners) also merits attention. Here Government can play an active role through policies enabling profitable philanthropy among the corporates. The average potential growth of the sector is 50% and if it is supported by tax saving programs, corporates can be encouraged to invest in MFIs. Recent guidelines by SEBI to set up an Alternative Investment Fund (AIF) including a social equity fund are a positive move. When key points like a minimum corpus of 20 crore will count as an AIF may come as a breather, capping AIF limit to 25% may prove a dampener. A recent study conducted by ESAF on Social return on investment puts the ratio at 1:3.19, which means for every one rupee invested in ESAF microfinance there is a return of Rs 3.19. For the investors they can enjoy both financial returns as well as the satisfaction of contributing to the holistic growth of down trodden. With policies that enable easier flow of capital to the sector, the impact the sector can make is simply huge.

 

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