Microfinance Remains Relevant

The paper “Has Microfinance Lost Its Moral Compass?” by David Hulme and Mathilde Maitrot (EPW, 29 November 2014) is correct in some of its basic postulations, however too many generalisations abound, which need discussion. It speaks of mainstream finance and microfinance, as if they were monolithic and non-differentiated sectors.

While it is true that the global financial crisis of 2008 was a result of the risky financial behaviour of leading multinational banks and investment banks, mostly located in West Europe and North America, which focused purely on making huge profits through numerous mechanisms including over-leveraging, exploiting regulatory loopholes, designing unintelligible exotic products and misinforming their clientele, the entire mainstream finance sector need not be tarred with the same brush. Mainstream finance consists of not only giant multinational banks and investment banks, but also of a large number of savings banks, retail banks, community banks and cooperative banks, which are basically small institutions located in specific regions and catering to the financial needs of common people, medium and small enterprises, and traders and communities at large.