“Microfinance began as an instrument of poverty alleviation, but commercialisation has altered its character”. Explain the core development philosophy of microfinance. Analyse how profit-driven lending has reshaped lender–borrower relations. Suggest regulatory measures to ensure socially responsible microfinance.
Kartavya Desk Staff
Topic: Inclusive growth and issues arising from it.
Topic: Inclusive growth and issues arising from it.
Q5. “Microfinance began as an instrument of poverty alleviation, but commercialisation has altered its character”. Explain the core development philosophy of microfinance. Analyse how profit-driven lending has reshaped lender–borrower relations. Suggest regulatory measures to ensure socially responsible microfinance. (15 M)
Difficulty Level: Medium
Reference: TH
Why the question: In Bihar’s villages, microfinance has changed from a promise of empowerment to a deadly debt trap Key Demand of the question: Explain the development philosophy underlying microfinance, analyse changes in lender–borrower dynamics due to profit-driven expansion, and suggest regulatory reforms to restore the social orientation of microfinance. Structure of the Answer: Introduction: Introduce microfinance as an instrument of financial inclusion and livelihood support for low-income households. Body: Briefly describe the core development philosophy behind microfinance (inclusion, empowerment, income generation). Analyse how commercialisation has changed lender–borrower relationships (target-based lending, coercive recoveries, indebtedness). Suggest regulatory measures to ensure socially responsible and ethical microfinance practices (repayment capacity norms, transparency, livelihood linkage). Conclusion: Reinforce the need to balance financial sustainability with borrower dignity and development outcomes.
Why the question: In Bihar’s villages, microfinance has changed from a promise of empowerment to a deadly debt trap
Key Demand of the question: Explain the development philosophy underlying microfinance, analyse changes in lender–borrower dynamics due to profit-driven expansion, and suggest regulatory reforms to restore the social orientation of microfinance.
Structure of the Answer:
Introduction: Introduce microfinance as an instrument of financial inclusion and livelihood support for low-income households.
• Briefly describe the core development philosophy behind microfinance (inclusion, empowerment, income generation).
• Analyse how commercialisation has changed lender–borrower relationships (target-based lending, coercive recoveries, indebtedness).
• Suggest regulatory measures to ensure socially responsible and ethical microfinance practices (repayment capacity norms, transparency, livelihood linkage).
Conclusion: Reinforce the need to balance financial sustainability with borrower dignity and development outcomes.