Microfinance Institutions or MFIs as we better know it today is a phenomenal concept, too good to be true. I always thought that MFIs were low interest rate, lending agencies. Lending to people in rural areas, especially women. These women are organized into productive activities through Self Help Groups, committed to making an earning through a common coordinated activity. I strongly believed that they were the answers to the poor man’s cry for credit and deliverance from the gnawing claws of the money lender.
Of late MFIs have been in the news for the right and the wrong reasons and it got me really interested. I tried to understand them better (which of course dislodged my earlier understanding). MFIs are not banks because they do not have deposits (that’s the only difference I could gather between MFIs and Banks). MFIs are not NGOs either as they do not do grass root level developmental work. MFIs are lending (credit) agencies but definitely not at low rates (their interest rates may vary from 15 % to 30% pretty high!!!). MFIs are not just micro-credit agencies but also offer a range of financial services like insurance, pension etc. I thought that MFIs lent money only for productive purposes to start new ventures. But I was proved wrong again. They also lend for personal consumption like marriages, functions etc. I wonder how then, does the borrower return this money given that the borrower cannot even accumulate small amounts.
MFIs lend money to a very difficult target group. People who do not have bank accessibility / credibility but are credible to procure small loans which they can pay back or people who are not getting organized loans for their unproductive use. A difficulty group of people to find, I must say and all the more difficult to retrieve loans back from. Is it why we hear of a high defaulters for the MFIs? (don’t know, just pondering). Of course looking at the target group, it is not difficult to guess the range of amount being lent ……..from a few thousands to a few lakhs (3-4). Though MFIs opine about their social focus and direction, most of them do not speak about the social impact of their schemes and initiatives. In fact the other day, I was reading a debate on whether Grameen Bank (Bangladesh) had actually been instrumental in poverty alleviation.
MFIs have a wonderful reach. They can boast of thousands of villages, trillions of money and incredibly honorable funders. The MFIs have been very innovative and have introduced multiple backward and forward linkages to micro-credit filling the gaps left agape by the Government and the Banking institutions. MFIs have beautifully filled in the gaps of financial services left by the banks and development activities of the Government.
Is the Government introducing all these ordinances to cover up for the cracks and the mismanagement from its side or is it really trying to stop the relenting farmers from suicide? I don’t know. Only time and a well researched study can tell that.
