Market for 33 percent interest loans: Financial inclusion and microfinance in India

ABSTRACT

Financial inclusion is the process of building viable institutions that provide financial services to those hitherto excluded. These may include savings, insurances, remittances, and credit. Microfinance became the most dominant method for achieving financial inclusion. However, different microfinance schools of thought recommend opposite ways for attaining financial integration. India is a particularly insightful case study due to the sheer number of people excluded from formal financial services, as well as the spectrum of actors and approaches. The aim of this article is threefold. The first aim is to define financial inclusion, depicting its status quo in India and comparing it to its South Asian and Brazil, Russia, India, China, and South Africa (BRICS) peers using recently released data from the Global Findex database. The second aim is to focus on microfinance as the dominant vehicle for achieving financial inclusion by scrutinizing its definitions, contrasting its two leading “schools of thought,” and analyzing the central role of its dominant group-based approach. The third aim of the article will examine why people opt to take micro-credit at 33 percent interest rates.