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.
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