Mar 8, 2010

Microfinance -- The bubble bursts. Time to book the culprits.

I was never in doubt. Microfinance is a loot, and it must stop.

Even the Economic Times in its front page report "Goldrush over for microfinance" (and carried over inside to a full page report Conflict of Interest), Mar 8, 2010, has exposed the scam. Read this blurb:

"A woman who takes a Rs 10,000 loan from a microfinance institution has to pay Rs 225 every week. If she is unable to make this payment or has another emergency in the house, she will take a loan. The existing lender will not give you a fresh loan till the old one is at least 35 weeks old, so she will borrow from another MFI.

That's another Rs 225 every week. Weighed down, she will take a third loan in a matter of months. Now she has to pay Rs 675 every week ! And so, a fourth loan....I feel sorry when I see these women borrowers. They are forever wondering where their next instalment will come from. Some are working as far labour to repay loans. If they are unable to fully repay, they sell cattle, land or jewellery."

-- Says Susheela
Resident of Ibrahimpur village, off the Hyderabad-Karimnagar highway in Andhra Pradesh

What Susheela says is the truth, a stark reality. The MFIs are ofcourse in a denial mode, and for obvious reasons. After all, what is stake is a loan book of around Rs 11,700 crore. Who would like to accept that this money has been raised, as Susheela says above, by unfair means. Denials notwithstanding, multiple borrowings, more often to repay the earlier loan, are rising alarmingly. 

It is high time the racket is burst. This can only happen if you pick up your pen and write to the Governor of the Reserve Bank of India (RBI). Copy your letter to the Finance Minister Pranab Mukherjee. You can get their contact details from their respective websites. 

Meanwhile, here is the link to the ET report on microfinance:


Prakash Pandey said...

This is unbelievable.... It is a shame that every government claims to work for the "common man" ....apparently what they refer to are the men who commonly get to meet with them ..... hence the term "common man" . The RBI is perpetuating a system which can only accentuate the disparities. The current system of money creation is the cause of inflation and is a hidden tax on those who hold the money. It is not just the MFIs but the entire financial system which is engineered to keep the rich, richer and to keep the poor working to ensure that.

Rugged and Worn Out said...

While Micro Financing at one end, helped Younus to win Noble Peace Prize, the model is always fraught with this risk.

So the implementation model, co-ordination between banks, and better sense in the fresh MBA graduates trying to finish their targets can only improve this.

We still live in the age of Adam Smith who said...Best Results come when Every Man does what is best for himself. Though sounds funny..we should move into what Nash said.." what is best for himself and the society".