Microfinance, macro effects…..VISHAL MEHTA
The microfinance business model has both reach and scale We risk throwing out the financial inclusion baby along with the supposedly muddy microfinance bathwater.
The microfinance business model has both reach and scale We risk throwing out the financial inclusion baby along with the supposedly muddy microfinance bathwater.
RECENTLY there has been a lot of debate on the Andhra Pradesh government’s ordinance effectively preventing microfinance companies from operating in that state, as well as its alleged causes, including multiple lending and coercive collection practices by MFIs that have supposedly forgotten their social mission. However, the widespread criticism of microfinance and the Centre’s and the RBI’s unwillingness, so far, to step in decisively risks making an already bad situation even worse. Indeed, we risk throwing out the financial inclusion baby along with the supposedly muddy microfinance bathwater.
One should first recognise that over the last decade, MFIs have been able to provide credit to over 25 million poor households, eclipsing five decades of government efforts. And they were able to do this despite charging higher interest rates than banks or government programmes -so clearly there has to be something right about the customer-centricity of their model.
Indeed, MFIs in India emerged largely out of social-driven enterprises, for most of whom profiteering was not the sole objective.