Microfinance continues to attract global and domestic investments. These investments ensure that the “financial inclusion” of marginalised groups remains a lucrative enterprise for the dozens of microfinance institutions (MFIs).

Just a decade ago, the microfinance sector attracted much media attention due to coercive loan recovery practices and even suicides in Andhra Pradesh.

Yet, today, the coverage of MFIs is entirely divorced from the real lives of those it supposedly served, as news coverage focuses on abstract numbers and policies. However, the sector continues to exert considerable moral authority because of its focus on poor women.

But do MFIs provide women with the support and services they need?

India’s microfinance industry has not only drifted away from serving women, but seldom considers their real needs. Their functioning often reinforces gender inequality.

The industry profits from unpaid labour of women borrowers, who organise groups and leverage personal information to ensure debts are paid.

In conversations this writer had in Bengaluru, women leaders leveraged position in the community to create groups tailored to the requirements of MFIs, ensuring the required number of better-off and poorer women, entrepreneurial women, renters, and homeowners.

This variety of social profiles are required for MFIs to create reliable groups in which the risk is spread out.

Yet MFI workers themselves lack the intimate knowledge required to form such groups from scratch in neighbourhoods already flooded with subprime debt. MFIs profit from the unpaid services of such women leaders.

Though microfinance is supposed to help women in their entrepreneurial activities, women often take loans to tide over expenses such as school fees, medical expenses and paying off earlier loans. MFIs profit from this as well. As long as a borrower repays her debt, she can take out a larger loan next year, a situation that allows the MFIs to have larger profit margins. Even privileged women workers within MFIs have limited options for career growth. Women workers often carried a heavy emotional load, helping other women pay off debts they couldn’t afford.

Each month, they struggled to pay off the other member’s debt. Some of the more unsavoury activities associated with loan repayments remain hidden from official records as MFIs continue to provide investors with lucrative profit margins due to high levels of on-time repayment.

Positive media image

These realities exist in plain sight and yet, the overwhelming portrayal of MFIs in the Indian media is positive. The association between MFIs and women’s empowerment persists because of how the privileged classes, both inside and outside India, view women borrowers.

MFI borrowers overwhelmingly come from precarious circumstances, but are often not poor, even if they live in neighbourhoods in which exploitation and destitution are commonplace. Yet, those outside the slum seldom take the time to understand the tremendous diversity of circumstances within it. Instead, they are viewed as a homogenous group made of small-scale entrepreneurs or moral mother-workers who work for the benefit of the family.

MFIs and small finance banks (SFBs) amplify these understandings by publicising “success stories” of clients that amplify the role of a high-interest loan in a woman’s success. MFIs manipulate the complexity of women’s stories in order to elevate the transformative role of the loan in a borrower’s life.

In other words, exploitative financial companies not only profit from the labour and money that women borrowers pay, but also co-opt to legitimise themselves as helpmates to the poor, rather than moneylenders. They claim to help women start sustainable enterprises that will lift them out of poverty.

Losing track

We have lost track of the core question of whether small, high-interest financial products respond to the needs of the working-class women the industry claims to serve. As in so many other industries, financial speculation, shareholder interests, and an interdependence between state and market-led interests has created policies and practices that circumvent the question of what women borrowers require as citizens.

The question of what women borrowers really need in their lives becomes relevant to MFIs only while designing training programmes or new consumer finance products. And in those cases, the question is more about whether women borrowers will engage, not whether it would serve their short- and medium-term goals. The significant disconnect between the image MFIs project and the reality of their financial operations is made possible by the incredible kindness and resourcefulness of women borrowers, who have, in contemporary India, become the bearers of debt and managers of household finances.

Women are often grateful to MFIs for giving them loans for medical emergencies at lower interest rate than the local moneylender. But what they need is access to basic, reliable healthcare.

In not a single conversation that this writer had with MFI leaders was there any interest in ensuring that women borrowers had access to the social supports they needed to thrive.

An equitable path forward for the industry requires meaningful regulation that brings women clients and their local allies to the table to strategise toward a fairer future for working class women in India.

MFIs have accomplished something historic by creating trusting relationships with poor, working class and rural women who have historically been excluded by the banking sector. The time has come to re-evaluate the regulations and motivations by which they abide, diversify their internal personnel, and participate in a conversation about how to alleviate the struggles of borrowers across the country.

The writer is the Luella LaMer Professor of Women’s Studies and Professor of Sociology at Wellesley College. This article is by special arrangement with the Centre for the Advanced Study of India, University of Pennsylvania.