MFIs in the news for wrong reasons …………..series(1)

Lately MFIs (Micro Finance Institutions) have lot been in the news for wrong reasons. Sacking of MD & CEO of SKS Microfinance, one of the largest MFI, Andhra Pradesh Govt. passing an ordinance to capping activities of MFIs in the state, arrest of 3 employees of MFIs, etc. So what is going wrong in the sector?

The importance of microfinance cannot be overstated for the laudable objective of making credit available to the rural poor who otherwise have remained untouched by the vast reach of nationalised banks. Microfinance through SHGs provided the answer, Govt. extended credits to various agencies through NABARD or other similar agencies. Several donor agencies encouraged livelihood programmes which provided facility of credit to the poor women who otherwise did not have access. However their impact remained limited, due to limited reach of these organisations. An estimate puts that there could be a need of close to $50 billion dollars all over India !!!

AP has been at the forefront of the developments in the microfinance sector. Vijay Mahajan, pioneer in the sector who conceptualised Basix is well known in the development sector. Basix was the first institution which took commercial debt and equity investments, both internationally and from within India. Vikram Akula also saw the potential in the sector and converted his non-profit SKS Microfinance (1998) to ‘for-profit’ operations in 2005. His IPO was one of the most successful, garnering over Rs 1600 crores which was oversubscribed several times. Other known MFIs which have sprung into action, include Sharemicrofin, Spandana, L&T, Asmita, among others.

As the sector got crowded and ‘profit maximisation’ became the mantra, the MFIs fell over each other in giving loans to poor house-wives. Normally a microfinance loan is around Rs. 5,000 – Rs. 20,000 per family, basically to help a family set-up a small enterprise or meet some urgent need. However repayment capacity was always the basis of these micro loans. However to meet their targets, MFIs started giving multiple loans to the same ‘individual’. This resulted in many of these women having accumulated loans anywhere from Rs. 70,000 – Rs. 100,000. Facing crop failures, and no income to return the money, coupled with coercive tactics of loan collectors, borrowers came under severe mental pressure and there were reports of spates of suicides in some of the worst affected districts.

——- to be concluded


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2 Responses to MFIs in the news for wrong reasons …………..series(1)

  1. Pradeepta Nayak says:

    Dear All,

    Their days were numbered and they had to die.

    It is a welcome death !

    They made poor poorer but worked in the name of poverty upliftment.

    What an irony !


    Sampradaan ICP

  2. Mathew Cherian says:

    Dear All,

    I think this was coming as all MFI’s had lost their social conscience. Sometime back some of them separated from the commercial sharks to become what is called socially responsible MFI’s and a network of them is called INAFI.

    When you charge 24 % interest you invoke the provisions of the Money lending Act and hence you violate it and called a loan shark. There were several papers from the early 90’s which indicate that microfinance never helped the poorest of the poor. However some of our MFI’s chose to ignore it as Mahatma said “ there is enough for everyone’s need but not for everyone’s greed”

    I have no sympathy for them as none of them used to lend to elderly above 65 saying they were not viable . Better they all dunk in the Ganges!

    Mathew Cherian

    Chief Executive

    HelpAge India

    Fighting Poverty , Isolation and Neglect

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