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India's Rural Financial System: Does It Support Pro-Poor Innovation?

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Executive Summary

From the perspective of poverty alleviation, socially relevant, or pro?]poor, rural innovation is of particular interest in a country like India since it is in rural areas that most of the poor live. Pro?]poor innovation in rural areas is more likely to occur through small?]scale ventures and entrepreneurs than industrial research and development. The Indian banking system does not support such rural pro?]poor entrepreneur?]based innovation efficiently. Instead a pioneering alternative financing sector has been emerging recently. There are three broad categories of organisations in this sector: grassroots innovators and incubators, micro venture capital firms, and small?]scale financiers. This paper considers why the core of India's financial system, its banking sector, does not support rural entrepreneur?]based innovation.

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