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India in Transition

Financial Inclusion Policies in India: Reinforcing Profit from Gender Inequity

Smitha Radhakrishnan
April 10, 2023

Microfinance, the practice of lending to groups of vulnerable women without collateral, continues to dominate India’s financial news. Sizable new investments in the sector come from both domestic and global capital sources. These investments ensure that the “financial inclusion” of marginalized groups remains a lucrative enterprise for the dozens of microfinance institutions (MFIs) in India’s banking ecosystem. Just a decade ago, India’s microfinance sector was the object of media fury. In Andhra Pradesh, media outlets held MFI feet to the fire, calling attention to coercive loan recovery practices and even suicides. Yet, today, the coverage of MFIs is entirely divorced from the real lives of those it supposedly served, as news coverage focuses on abstract numbers and policies. However, the sector continues to exert considerable moral authority because of its focus on poor women. But do MFIs provide women with the support and services they need? And why does an industry that focuses entirely on shareholder returns continue to be a convincing vehicle through which to address the exclusion of women from vulnerable groups from India’s financial ecosystem?

In my recent book, based on a decade of research on India’s commercial microfinance sector, I show that India’s microfinance industry has not only drifted away from its outward mission to serve excluded women, but that MFIs seldom consider the real needs of women in their strategizing. On the contrary, their everyday functioning systematically reinforces gender inequality, both within their organizations and in their interactions with clients.

The industry profits from unpaid labor of women borrowers, who organize groups and leverage personal information to ensure debts are paid. In Bengaluru, for example, I met Shanthi, a woman leader who claimed to “help” her neighbors. Upon further conversation with her and others in her group, it became clear that she leveraged her position in the community to create groups tailored to the requirements of MFIs, ensuring the required number of better-off and poorer women, entrepreneurial women, renters, and homeowners. This variety of social profiles are required for MFIs to create reliable groups in which the risk is spread out. Yet MFI workers themselves lack the intimate knowledge required to form such groups from scratch in neighborhoods already flooded with subprime debt. Shanthi had cajoled, coerced, and assembled women with varied interests to take a loan together, but claimed it was all in the name of “help.” While Shanthi certainly had her own interests, there is no question that MFIs profit from her services, even though she does not get a paycheck from an MFI.

Microfinance has a reputation for providing women with the opportunity to run a microenterprise and become self-sufficient. But in India, women borrowers use loans to pay school fees, meet necessary medical expenses, and pay off more expensive debts, moving money around at their own expense in order to eke out a highly precarious living. MFIs profit from this as well. As long as a borrower repays her debt, she can take out a larger loan next year, a situation that allows the MFIs to have larger profit margins than they would on a loan with a new client who requires considerable due diligence before the loan is paid out.

Even women workers within MFIs, who hold positions many borrowers envy, find themselves on something of a sticky floor with limited options for career growth. The women workers I spoke to who interacted daily with clients often carried a heavy emotional load, helping other women pay off debts they couldn’t afford. An MFI fieldworker, Nadia, recalled an instance in which one member of a group she helped form had absconded, leaving the other members unable to cover the monthly repayments. Each month, they struggled to pay off the other member’s debt. Rather than reporting the problem, which would have marred both Nadia’s record and that of the borrowers, Nadia encouraged the borrowers to break into the absconding member’s house, sell their water filter and anything else they could find, and repay her part. They did so and were “happy” thereafter because Nadia was able to give them another loan the following year. All these interactions are hidden from official records as MFIs continue to provide investors with lucrative profit margins due to high levels of on-time repayment. Many other women workers I spoke to were denied internal opportunities or, if they were at the corporate level, regarded other women workers as unreliable.

These realities exist in plain sight and yet, the overwhelming portrayal of MFIs in the Indian media is positive. The association between MFIs and women’s empowerment persists because of how the privileged classes, both inside and outside India, view women borrowers. MFI borrowers overwhelmingly come from precarious circumstances, but are often not poor, even if they live in neighborhoods in which exploitation and destitution are commonplace. Yet, those outside the basti (slum) seldom take the time to understand the tremendous variety of circumstances within it. Instead, we view them as a homogenous group made of small-scale entrepreneurs or moral mother-workers who work for the benefit of the family. We assume that they are married to useless alcoholic men. MFIs and small finance banks (SFBs) amplify these understandings by publicizing “success stories” of clients that amplify the role of a high-interest loan in a woman’s success. As I found in my interview with Selvi, MFIs manipulate the complexity of women’s stories in order to elevate the transformative role of the loan in a borrower’s life. In other words, exploitative financial companies not only profit from the labor and money that women borrowers pay, but also the stories they co-opt to legitimize themselves as helpmates to the poor, rather than moneylenders. They claim to help women start sustainable enterprises that will alleviate poverty or lift them out of poverty altogether.

We have lost track of the core question of whether small, high-interest financial products respond to the needs of the working-class women the industry claims to serve. As in so many other industries, financial speculation, shareholder interests, and an interdependence between state and market-led interests has created policies and practices that circumvent the question women borrowers require as citizens. The question of what women borrowers really need in their lives becomes relevant to MFIs only when designing training programs or new consumer finance products. And in those cases, the question is more about whether women borrowers will engage, not whether it would serve their short and medium-term goals. The significant disconnect between the image MFIs project and the reality of their financial operations is made possible by the incredible kindness and resourcefulness of women borrowers, who have, in contemporary India, become the bearers of debt and managers of household finances. When Vijaya needed funds for an overdue hysterectomy, she was grateful to receive access to an MFI loan through her friend Shanthi, a “helper to all,” and even more grateful to the MFI that offered her the loan at a rate that was lower than the neighborhood moneylender, to whom she already owed a significant debt. But what Vijaya really needed was access to basic, reliable healthcare. In not one single conversation I had with MFI leaders was there any interest in ensuring that women borrowers had access to the social supports they needed to thrive.

An equitable path forward for the industry requires meaningful regulation that brings women clients and their local allies to the table to strategize toward a fairer future for working class women in India. MFIs have accomplished something historic by creating trusting relationships with poor, working class and rural women who have historically been excluded by the Indian banking sector. The time has come to re-evaluate the regulations and motivations by which they abide, diversify their internal personnel, and participate in a conversation about how to alleviate the struggles of borrowers across the country.

Smitha Radhakrishnan is the Luella LaMer Professor of Women’s Studies and Professor of Sociology at Wellesley College.

India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.

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