Microfinance Institutions for the Micro Poor

By Sharma Ravindra.N

The author is an employee in the same industry.

The views expressed in the below article are those of the authors and do not necessarily reflect the views of IMBN. IMBN is a platform for the microfinance community in India, if you have an opinion on the current crisis in Andhra Pradesh feel free to send us a write up through the contact page.

The author in the below articles alleges that the recent suicides linked to MFI’s could be because of various other factors and not necessarily because  of loans given by MFI’s in AP.

More or less the anatomy of all the MFIs today is the same. Similar consequences can be expected across all the operating areas of a particular institution when the same principles and practices are followed at all its branches. Last week , there was a news item that said that about 30 people have committed suicide after being harassed by MFIs, in Andhra Padesh. What contributes to such a situation as observed in the same province and not in other states ?

However, I am not encouraging people of other states to take their own lives but rather I would like to correct the news as either;

(a) They are tainted as suicide or

(b) Those who died (naturally), had at some time, availed loans from MFIs.

We see that the faster development of a nation lies only when a majority of the systems are governed by private entrepreneurs. Do we believe it is due to the incapability of the government ? Obviously not. It is instead because of the opportunity given to the capable individuals/organizations who can then under the right incentives strive to make the nation developed.andhra suicide microfinance

Again, when we compare the time taken for the government and private sector , in taking a service to the public then we realise that private sector is much more efficient and productive. Thus private MFIs have emerged as the lead providers of economic assistance to the rural poor at the minimum cost of their operations. People take loans from MFI’s because they are preferred by the public over SHG’s many of whom do not get enough credit to disburse because of red tape and lackadaisical attitude of bureaucrats.

Yes, most of these customers are economically poor and illiterate, but they are quite familiar with the monetary equations. Another remarkable fact that has gone unnoticed is that there has hardly been any significant change in the rate of interest during the last half a decade. While on the one hand the rate of inflation has been pulling down the value of rupee in the market , the interest rates have more or less remained the same and among some of the larger MFI’s even reduced.

Though the rate of interest has not been increased, it is indirectly in a decreasing trend. Thus the allegation of “increased rates of interest” stands unsupported. The only means of the sustainability of these institutions in the tough business conditions of rural India is expansion and penetrating deeper into rural areas. Had there been really anything unethical about their recovery practices, then there would not have been any delinquencies noticed in the books of any such institution, but there are sufficient cases of overdue accounts and they are increasing day by day.

Taking advantage of such expansion of MFIs, the rural people have adopted a strategy of utilizing the corporate capital for their retail business activities by availing multiple loans from different such institutions for the same business. Many of them can easily repay all such advances in cases of perishable goods (milk & vegetable vending) where the composition of working capital in the total investment is much higher, but never in activities where a minimum dead-stock is required to be maintained. There are also instances where the people make use of the said advances to meet their domestic consumption; marriages, household-gadgets etc.

I deeply mourn all the lives lost , and pray that their souls rest in peace. At the same time I also strongly believe the MFIs had nothing to do with the suicides. Finally the ordinance speaks about no new issue which is not already in practice by most of the MFI’s except for the new rule of registering with the district authorities and submitting the data to the local government bodies.

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