An Industry Note Microfinance Institutions Promoting Market Linkages in India

Executive Summary

Traditionally, low income rural households in India have suffered from a lack of proper access to institutional credit. Microfinance institutions (MFIs) filled this void, providing credit to the poor, especially in the rural areas. However, MFIs often observed that the impact of credit on the income of their clients was low as other issues hampered the growth of the clients'microenterprises and prevented their participation in the larger economy. These constraints included low productivity, high input costs, post-harvest losses due to lack of storage facilities, an inadequate supply chain, and poor market intelligence.

This note describes the need for forward and backward market linkages and provides an overview of the various methods adopted by MFIs to address the constraint of market linkages, particularly in areas such as agriculture, fisheries, and dairy. These market linkages not only helped MFIs in reducing risks on the loans given to clients but also encouraged rural entrepreneurship, which ultimately had a positive outcome on the loan portfolio of MFIs. With higher loan recovery rates, enhanced portfolio, and better outreach, MFIs saw immense business sense in creating market linkages for their clients.

Keywords:

Microfinance institution (MFI), Backward linkages, Forward linkages, Microenterprises, Supply chain infrastructure, Moneylender, Middlemen, Agriculture and Business Development Services (AgBDS), Fisheries, Dairy, Export cluster, Revenue generation, Credit absorbing capacity, Better price realization, Scaling up of operations, Reduced risk on loans, Vijay Mahajan, Mohammad Yunus

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