Microfinance, Social Protection and Poverty: Challenges and Opportunities for Service Delivery in India

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Abstract

Poverty is an extremely significant issue for Indian society with some estimates suggesting that up to 75% of the Indian population may be poor and deprived of basic necessities to sustain a normally healthy life. Microfinance and social protection are considered as important micro-level strategies to reduce poverty. Literature reveals that both strategies suffer from significant service delivery constraints causing exclusion of a large majority of poor households from access to microfinance, and inclusion and exclusion errors and elite capture of social protection programmes. This research explored whether outreach of microfinance and impact of social protection may be enhanced if microfinance products are built on the provisions of social protection for the poor households, and services of microfinance and social protection are synergistically delivered leveraging on the strengths of each other. The research further explored if it is feasible to employ a State institution, India Post, towards such synergistic service delivery. In order to further these research objectives, financial needs of poor households were estimated, and structures and mechanisms causing the exclusion of the poor from microfinance were investigated, by drawing empirical data from three Indian states. States were sampled while acknowledging that the poor are largely excluded from microfinance in two states of UP and Gujarat, and are almost totally included in the state of AP. This provided me with an opportunity to identify structures and mechanisms excluding the poor from microfinance provisions in UP and Gujarat, and contrast it with the situation in AP to further refine and enrich our understanding.Philosophical basis for design and methodology for this research is provided by critical realism, according to which the goal of social research is to understand the world in order to change it for better. The research is primarily based on the data collected through qualitative research methods as such methods are more suited than quantitative methods to critical realistic intensive studies, attempting to uncover underlying structures and mechanisms causing a social phenomenon. Research findings suggest that the financial needs of poor households in UP and Gujarat either remain unmet, or are met through informal mechanisms which are costly and exploitative. Poor are also not able to entirely access their entitled benefits from social protection programmes; as such programmes generate their own financial needs, which remain largely unmet. It was observed that social protection programmes have a favourable political environment in India and are being increasingly employed as a means to fight poverty. Such programmes therefore constitute an important aspect of the financial environment of the poor. Microfinance programme in AP reaches the poor partly because it is also meeting the financial needs generated by the provisions of social protection and thus the poor households find it useful. Poor also become attractive clients for microfinance due to the assured benefits they receive from the social protection programmes. Thus it addresses both demand and supply side constraints which keep a majority of the poor out of the ambit of microfinance in UP and Gujarat. Such social protection-linked service delivery of microfinance was further observed to be enhancing the impact of social protection as well as of microfinance. It is further argued that India Post is suitably located to deliver such social protection-linked microfinance services due to its close proximity to the rural population, and its personnel being known to and trusted by the local communities. India Post network also has a long and rich experience of delivering financial services. Being a government department, it is in a better position than similarly placed agencies such as banks and NGOs, to coordinate with other government departments offering social protection. Moreover, it has a valuable information-capital on the households that can be leveraged to efficiently identify the prospective recipients of the social protection programmes.

Keyword(s)

Microfinance, social protection, poverty, India, service delivery, post office, rural livelihoods

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