Let’s not conflate microfinance with self-help-group financing

The microfinance industry has witnessed moves by the Reserve Bank of India to revise the regulatory framework for it and also caution it against an exclusive focus on business growth. Thus, it wasn’t surprising for us to see the CEO of Sa-Dhan write an op-ed in April 2023 that spoke of some hurdles faced by microfinance institutions in their search for growth. This divergence is clear once we note that RBI is cautioning against a kind of growth that would pile on even more debt on the already-indebted, whereas Sa-Dhan is calling for greater geographical expansion and taking formal credit to places where it’s yet to create an impact. Thus, an RBI deputy governor’s November 2022 speech subsumes SHG loans under the category of microfinance, while Sa-Dhan sees SHGs’ widespread geographical presence as a spatial model for MFIs to emulate. But the moral commitment to help one another remains the primary purpose and is most likely the reason that the state has stepped forward to support the economic activities of SHGs with a variety of structured resources such as village level organizations, cluster level federations, state-level rural livelihoods missions and the National Rural Livelihoods Mission.