Abstract
The vast network of banking and co-operative finance institutions in India has failed to provide low-income families with significant access to financial services. In this situation, the non-governmental microfinance institutions have attempted to provide an alternative to the high-cost informal financial services that most low-income clients must rely on. The extent to which such service provision is appropriate is discussed in this article using information from the financial histories of low-income families in the slums of Delhi and two villages of one of the more economically backward areas of India. The analysis in the article shows that the needs of low-income clients would be best served by highly flexible financial services that enable the conduct of frequent transactions both for small savings and for borrowing at irregular intervals. In relation to this, both microfinance and formal financial institutions do not fully meet the needs of low-income families. The article concludes with practical suggestions for the design of products and delivery systems to meet these needs.
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