The dual nature of “peculiar problems” in microfinancing: perspectives on market efficiency and public policy nexus
Journal of Economic and Administrative Sciences
ISSN: 1026-4116
Article publication date: 8 April 2024
Abstract
Purpose
The microfinancing sector is infamous for being prone to high credit risks due to loan defaults by its poor borrowers. Conversely, the sector is also criticized for creating debt traps for the poor. The dual nature of these peculiar problems in microfinancing causes the market failure phenomenon. Therefore, the current study explores whether public policy intervention is required to address market failure.
Design/methodology/approach
The study undertakes a critical review of existing literature, the news, the policy documents and other publicly available information to shape the viewpoints in this study. Constructive criticism is used to build arguments to arrive at a conceptual framework that depicts how public policy should interact with markets to address the peculiar problems of the microfinancing sector.
Findings
The findings indicate that market failure in microfinancing is real and pressing. Therefore, public policy is invited, though in its limited form. While the policy intervention may help the formal microfinancing arena by regulating the interest rates, the policy administration in the informal sector is likely to fail. Therefore, the policy should attempt to create an environment of inclusiveness. Policies that rely on coercion are not recommended. In the long run, subsidies via policy intervention are discouraged. Instead, the policy should motivate the microfinancing sector to become self-reliant.
Originality/value
The study is one of its kind to provide perspectives on specific market failures and policy interventions in microfinancing, particularly in economies where formal and informal sectors coexist and are equally crucial.
Keywords
Acknowledgements
The author acknowledges Prof. Shridhar S from Symbiosis School of Banking and Finance, Pune, who motivated the author to write this policy perspective paper and suggested books to refer to and learn how policy interventions happen in an economy. The author thanks Dr. Vimal Bhatt and Dr. Sujoy Sen, both from Symbiosis Institute of Business Management, Pune, for their final comments and guidance during the last phase of this paper. The author appreciates the guidance of the entire journal team, its respected editors and editorial team, and the peer-reviewers in the journey of this article. We also thank the publishing team for their efforts in this manuscript.
Citation
Singh, K. (2024), "The dual nature of “peculiar problems” in microfinancing: perspectives on market efficiency and public policy nexus", Journal of Economic and Administrative Sciences, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JEAS-08-2023-0234
Publisher
:Emerald Publishing Limited
Copyright © 2024, Emerald Publishing Limited