Microfinance – Misinterpreted

Microfinance is a mere disillusioned word for a layman. He may not know what it is in the first place and then when it is explained to him, his reaction would be, that the microfinance enthusiasts are asinine to expect money back from these poor, poverty driven people. And mind you, this thinking is not constrained to a layman, but has clawed its paws on even the big gentlemen of the banking industry, who are the honorable money providers for the microfinance institutions. You feel stupefied on their reactions when they say “how can such a poor person ever repay you back the loan he has taken from you. It will only add on to the heavy, already filled baggage of debts on his shoulders. This stress will eventually lead to more suicide cases. People on large have started having negative mindsets on a whole after the greatest global economic turmoil in 2008.  Since this slowdown, everything and everyone seems to be counting on the fouls in the game of the ‘Capitalist Economy’. No one is ready to accept the change and have a positive outlook. It’s high time that people should score a goal in this game of economy-football by moving on to better, more innovative entrepreneur ideas and executing the same. Sometimes you do score a goal and sometimes not, life is inherently risky. There is only one big risk you should avoid at all costs, and that is the risk of doing nothing and just complaining about the mishappenings.

For a person sitting at home comfortably or in a fully air conditioned office, it is easy to say that Microfinance institutions are making more money than advised and have lost their true mission of greater outreach to the poor, reducing the skewness in the distribution of income with easy and cheap money for the poor. According to the World Economic Forum’s report on Global risks 2012, seventh edition, ‘Severe economic disparity ‘comes at the number one ranking under the Top 5 global risks in terms of Likelihood. Economic Disparity will only be stopped getting ranked as a risk when the world comes together to support the microfinance community with full heart.

Certainly, it is hard to realize the amount of toil and effort, a service officer has to make going from village to villages and that too under the difficult vagaries of the extreme weather. They follow a challenging regimen, getting up early and working till the late evenings. This is just a mere glimpse in an average service officer’s life in any micro finance institution. Why can’t we see and appreciate the good work the microfinance community is doing. There is a vast difference in easily writing, typecasting a community altogether and actually working in a microfinance setup. We neglect the fact that atleast a few people are genuinely taking initiative to reduce the poverty levels around the globe, working towards great and greater financial inclusion for all. These are the people who joined hands and formulated strategies under the microfinance umbrella with an obvious aim to eradicate poverty and improve livelihoods.  Instead of supporting and cheering them, more and more pessimist people including a few politically motivated parties , a few gossip mongers or better to say the “ wannabe’s” , wanting to grab the media attention for being socially motivated are actually the ones doing the work of putting oil to the fire. If these people really are so concerned about development and alleviating poverty, they should stop speaking and start doing.

Kofi Annan has very rightly said- “There is no tool for development more effective than the empowerment of women.” This is exactly what most of the microfinance institutions are working on around the globe. These MFI’s cover two major development issues, one they target the poor and other they are helping in women development by giving loans majorly to rural women either in SHG (Self Help Group) model or joint liability models. The need of the hour is to strengthen the economic power of these ‘Bottom of the Pyramid’ women, funding them for their entrepreneur ideas to give a much needed boost to the world economy.

A usual comment which you hear from the financial community including banks is that such poor people cannot be trusted in terms of money. But if you look at the Barclays Banking on Change Report, 2012, it says- “The very poor people do have the capacity to save and are highly creditworthy.” You will be amazed to know that even when the entire world was engrossed and chained with the heavy weights of the global turmoil, microfinance institutions around the world were largely untouched by the Global Crisis. At the same time period in 2009, while giving an interview to the Associated Press during a trip to Bangkok, Mohammad Yunus of Grameen Bank told the reporter that “We have now shown that the poorest of the poor can be creditworthy. Our Loan repayments are as high as ever.” Most of the MFI’s take on clients who have no collateral, no credit history and no lawyers. Loans are given to women mostly for US 200 $ or less each time. Micro-lending’s success is based on a system of “moral responsibility” that makes repayment of the loan the concern of the community as well as the individual borrower. For them 200 US $ means the world, this amount is the much needed amount to give their lives a kickstart. For them it’s a fortune with this amount of loan!

Rural Women start their own business in the form of shops in their local village, export handmade items to the big cities or invest in agriculture and its allied activities. For these people, this little amount is more than sufficient to invest, earn and then duly pay it back with the interests. In fact contrary to the opinion of few authors and politicians on over indebtedness of these people, these rural people are always willing to take more amount of loan and have been very satisfied with the way microfinance works. For them microfinance is way better than taking loans from some unreliable third party lenders at super high interest rates. At the end of the day, everyone needs loan money to execute their ideas and make a living.  If the Microfinance institution keeps the check on each borrower that he/she does not indulge in borrowing from multiple MFIs at one go, then the repayment rates would always remain above 98 percent. The required check can be done by coordinating with the various credit bureaus that keep track of the credit history database of MFI borrowers.

In 2008, a Forbes article reported that an estimated 750 million households worldwide don’t have a bank account. This number might have slightly decreased until now but again this statement very firmly indicates that curbing microfinance won’t lead to development, it would only be stepping backwards in economic progress. We should learn from our past mistakes and move forward to a truly progressive and worthwhile story of financial inclusion for one and all!

Micro + Finance = Macro + Effect

Author: Vaishnavi Seth

Title: Manager ‘Communication and relationship’ – Financial Institutions

Organization: Satin Creditcare Network Limited ( SCNL), Delhi, INDIA.

We are the largest Microfinance institution in Northern India. All our efforts are concentrated on reaching out to the financially unrepresented class by providing them affordable loans and empowering lives! I, Vaishnavi as the Manager, coordinate the communication and other events between SCNL and all financial institutions having a tie up with us.

It encompasses building relationships for furtherance of the organization and to have a long term, mutually beneficial relationship with these institutions. I also manage the Social media Network of SCNL including Facebook, Twitter etc.

Bibliography

  • Barclays, Banking on Change Report, 2012-13
  • The World Economic Forum’s report on Global risks 2012, Seventh edition.
  • 2008, Forbes article

 

 

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