Nearly 70 percent of India’s rural households do not have a bank account. Less than 21 percent have access to formal credit – forcing many to turn to informal money lenders who charge exorbitant rates. Lack of access to efficient financial services (savings, credit, insurance and money transfer) leaves them vulnerable to emergencies and restricts their ability to develop their businesses.

USAID works with Sa-Dhan, India’s primary association of microfinance institutions, to extend microfinance services to India’s poor. The USAID-Sa-Dhan partnership specifically addresses the issues that hinder the growth of the country’s microfinance operations: the absence of an enabling regulatory and policy framework to create consumer and investor confidence in the sector; and the lack of capital to enable successful informal lending organizations to convert to formal microfinance institutions. Sa-Dhan has used USAID’s technical and financial assistance in its efforts to engage the Indian Finance Ministry and Reserve Bank of India on these issues. The USAID-Sa-Dhan partnership also develops performance and financial reporting standards for all microfinance institutions (MFIs) to increase investor confidence in investing in MFIs.

Based on interactions with Sa-Dhan, the Government of India recently announced the creation of a regulatory agency and system for the microfinance industry; established a $45 million privately and publicly administered Microfinance Development and Equity Fund; and permitted microfinance institutions to access capital from domestic and international markets and issue new products such as insurance.