Abstract:
Capital markets, including stock markets and commodity markets, are generally accepted as key vehicles for wealth creation. The depth, width and impact of these markets in highly industrialized countries are quite different from those in the newly and rapidly industrializing countries. In India, though the formal stock markets have mobilized a large chunk of capital and consequently generated substantial wealth, the number of people benefiting from the process is quite low even though the savings and capital generating ability of the people who are left out are quite high. Self Help Groups (SHGs) for savings and credit are increasingly becoming the building blocks for integrating low income people in India into the modern financial and banking systems. The terms of inclusion, however, in a way compel the SHGs and their members to fit into the existing financial systems, which are seen to be resulting in high transaction and intermediation costs and still not fully addressing the issue of user friendly access of capital to micro enterprises. The alternative options possible for integrating them into the modern financial systems on more equal and participatory and mutually beneficial terms are rarely considered. Alternative capital markets which bring together SHGs and their savings, entrepreneurial talents of the people, and sustainable institutions are visualized as viable options which will have to be developed and nurtured to enable large numbers of low income people in countries like India to become equity partners in wealth creation and distribution. This paper proposes to present an analysis of the pros and cons of intermediation and disintermediation by banks, capital markets, and micro finance institutions regarding access and control of the funds generated by SHGs and small savers, leveraging these funds, the ultimate cost of funds to the individual savers and borrowers, as well as the consequent wealth creation and distribution. This analysis is the basis for developing the concept of alternative capital markets.
