Remittances and microfinance in India: Opportunities and challenges for development finance

With remittances to the developing countries reaching USD 251 billion in 2007, there has been a recent surge of interest to understand the effective channelization of this flow of remittances for providing a variety of financial services desirable to the poor households in the receiving regions, especially in rural pockets. An effective solution, by way of suggestion, especially by policymakers, has been a partnership between the formal money transfer agents and Micro Finance Institutions (MFIs). The remittances and MFI nexus is seen as an important tool for development finance for the poor remittance receiving households. This paper makes an attempt to explore the various opportunities as well as challenges facing MFIs in India in this regard and recommends certain necessary steps in order to consolidate the process of linking MFIs with other conventional formal institutions. Additionally, the paper proposes two models of remittance transfer and mobilisation that could be applicable to India as well as other developing countries facing similar situation.