The west and most of the developing countries are looking towards micro-finance as one of the tool to eradicate poverty. Though many critics do point out that poverty is a complex problem which needs equally complex answers but none the less, MicroFinance offers hope. The Indian banks for one are toying with the idea first initiated by Mohd Younus of Bangladesh. His Grameen Bank’s main objective was to give loans to those poor people to whom banks do not wish to give loans owing to risk involved in return of the money. The idea has been a revolutionary one and like all revolutionary ideas it has made world leaders sit up and take notice.
The banks in particular in lending loans look into the credit history of an individual on whose name the loan is being taken. Bank looks into potential recovery options in terms of mortgages. In the case of the poor however there is a huge risk as returns are not guaranteed. Many like the former Governor General of RBI Dr Reddy have said that “microfinance” is the “subprime loan” of India. That is the risk driven loan something which crashed US economy. None the less Microfinance has showed its potential to scholars, the loans given are not of higher amount and are given collectively. It is this collective duty that results in the recovery and namely that it is mostly given to rural women. Grameen Bank in particular claims a recovery of about 97%. In India SKS is the biggest Micro Financing institution for lending. Grameen Bank also boasts of 97% of its borrowers are women, thereby being an instrumental tool in emancipation and economic independence of womenfolk.
According to CGAP, “Comprehensive impact studies have demonstrated that:
- Microfinance helps very poor households meet basic needs and protect against risks
- The use of financial services by low-income households is associated with improvements in household economic welfare and enterprise stability or growth.
- By supporting women’s economic participation, microfinance helps to empower women, thus promoting gender-equity and improving household well-being.
- For almost all significant impacts, the magnitude of impact is positively related to the length of time that clients have been in the program. (UNCDF Microfinance)
Micro Finance is an advantage as access to money allows the poor the purchasing power and with an opportunity to fulfill their dream and be self employed. There by boosting small scale entrepreneurship which in long run reduces that massive load of the government to provide jobs and source of living to its citizens. It provides an opportunity to the poor to be partners in the growth of the nation rather being burden. The various Indian banks especially government owned banks are trying to create separate wings for dealing which micro finance issues where loans could be provided for the poor and they could be helped to get out of poverty.
- In Bangladesh, Bangladesh Rural Advancement Committee (BRAC) clients increased household expenditures by 28% and assets by 112%. The incomes of Grameen members were 43% higher than incomes in non-program villages.
- In El Salvador, the weekly income of FINCA clients increased on average by 145%.
- In India, half of SHARE clients graduated out of poverty.
- In Ghana, 80% of clients of Freedom from Hunger had secondary income sources, compared to 50% for non-clients.
- In Lombok, Indonesia, the average income of Bank Rakyat Indonesia (BRI) borrowers increased by 112%, and 90% of households graduated out of poverty.
- In Vietnam, Save the Children clients reduced food deficits from three months to one month.
Though like all the noble efforts there are some concerns which are genuine such as this industry needs regulation via RBI. This has been a pivotal point which has been highlighted by the industry wise men. They say the micro-finance industry seems not to be a non-profit organization anymore( as many people are trying to get their IPOs etc ) but rather is converting into a profit oriented venture where in regulations are important as it may become an entity taking benefits and profits from the poor.
Like all the situations in the world there are places where Micro finance has restrictions. Microcredit may be not successful and run into losses where conditions pose severe challenges to loan repayment. For example, populations that are geographically dispersed or have a high incidence of disease may not be suitable microfinance clients. It may also be an issue in a war torn scenario where it is tough to keep a track of things therefore there are some debates of getting it into Afghanistan. In these cases, grants, infrastructure improvements or education and training programs are more effective. For microcredit to be appropriate, the clients must have the capacity to repay the loan under the terms by which it is provided.
Though there are many debates going on within the systems where Mohd Younus wishes to retain the Non-Profit philosophy of the Microfinance but there is no debate on the point that it has helped women empower and helped make many people economically sound and sufficient.