The SHG-bank linkage model of financial inclusion is geared more towards development and empowerment of the needy than the MFI model.
However, the quality of SHGs is being compromised mainly because the banks and the organizations that promote SHGs are not able to reach the high level of commitment needed to develop such groups.
As far as MFI model is concerned, sole focus on advancing loans has been resulting in problems, such as some people borrowing from one MFI and using the money to repay a loan taken from another MFI.
The MFIs also need to become more transparent in their operations. An important step taken by the Andhra Pradesh government is to set up village- level committees consisting of officials and borrowers to monitor the activities of the MFIs. The current version of the microfinance bill only covers 20-25 per cent of the sector, based on the thinking that NBFCs, which together have the largest portfolio of loans, are anyway regulated by the RBI. I believe there should be a comprehensive bill that should cover all kinds of MFIs. As far as the need for a comprehensive economic inclusion policy is concerned, I would submit that India have always had policies for the poor; the problem has been in their implementation.
There should be some mechanism that would integrate all development interventions and poverty alleviation programmes at the block level; that will require block-level coordination machinery.
The poor should be made aware of all their entitlements under different programmes as well as how they can benefit from financial inclusion schemes.