Abstract: Despite substantial efforts and a vast network of rural banks, the rural poor still have very little access to formal finance, and informal lending remains strong. Over the past decade new microfinance approaches designed to deliver finance to the poor have emerged and some have shown promise. However, empirical assessments of their reach or impact are still relatively few. Drawing on a recent rural access to finance survey of 6,000 households conducted by the authors, we empirically analyse the reach of the most dominant microfinance initiative, the SHG-bank linkage model. Based on this and international experience, the paper draws lessons for exploiting the potential of microfinance in India, outlines areas of concern for government policy towards this important sector, and suggests ways to scale up access to finance for the poor.

Keywords:   rural banks, formal finance

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