"In comparison to the rural regions, in recent times, there has been an exponential growth in the MFIs in urban areas."Discuss.

MFIs traditional market was the ‘unbanked’ rural India. However, there has been a shift from rural India to urban India. 67% of the MFI customers live in urban areas according to a survey.
The reason for this exponential growth in the urban areas are as follows-

  • Many MFIs have changed their business models. They are focussed more on efficiency which would enable them to get better profits. And this could be attained by functioning in urban areas.
  • Travel expenditure is associated with MFIs functioning in rural areas. Therefore, it becomes a costly affair as rural areas are less profitable.
  • Urban areas are densely populated and have a huge high customer base. Therefore, even in serving the urban-slums is very cost-effective.
  • There is a huge migrant population in urban areas who generally look for loan facility. MFIs would prefer targeting this population rather than working in rural areas.
  • The demand for microfinance loans in urban areas has gone up due to an increased financial literacy in urban areas due to CSR activities by corporate houses and banks.
  • The rural dwellers are more demanding and they also do not have time for regular meetings

Hence, big slums in cities are turning out to be cost-effective markets over small villages in far-flung locations. Therefore, there is a shift of MFIs to urban areas. (226 words)

Question for UPSC Mains:
"In comparison to the rural regions, in recent times, there has been an exponential growth in the MFIs in urban areas.” Discuss.

Published: March 17, 2016 | Modified:June 27, 2019

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