Since 2000, DPG had begun an active role in the provision of micro
credit facilities, facilitating federations and SHG-Bank linkages. RA
In recent years, both urban and rural areas have seen the entry of many
Micro Finance Institutions (MFIs) and MNC sponsored Micro Finance Companies.
Their declared goal is to provide Micro Finance to the poor, at least cost, at
their door steps. One can now see nearly a dozen Micro Finance institutions in almost
all villages in our working areas. On the positive side, this has reduced
the role of money lenders and the interest rates have come down.
The other side of the picture is that
these institutions have now slowly pegged up their interest rate. In the early
period i.e. about a decade ago, MFIs did provide credit at around 12%
equivalent to the bank interest rate. But now their rates are much higher than
the Bank loan rates. It goes up to even 36%.
MFIs: New Lenders:
If one takes into account all the hidden charges, the interest rate varies from
18% to 36% and in a few cases, well above 36%. Again, due to availability of
plenty of credit outlets, many are forced to take credit for all purposes. It
is also surprising to note that few families have become clients in more than
two or three institutions. A Bangladesh model is slowly getting in
operation, wherein one gets a loan from a MFI to repay another MFI loan.
Strange but true.
In few cases, I won’t be surprised if
such a trend creeps into our villages also. Even if the credit is used for
productive purpose, whatever the poor get as “additional income” is now mostly appropriated by the “new
lenders”. Unfortunately, the simple explanation given by MFIs for high interest
rate is that the cost of funds plus operation costs are much higher that the
normal bank rate! Unfortunately, the labour theory of Karl Marx is not even
being talked about by his so-called followers!
Dictomy:
It is a pity that NGOs which come into being to help the poor to acquire their
legitimate rights to be established from the Government, Banks and other development
organizations have now floated their own for-profit micro-finance
institutions to “serve” the same
poor.
The alternative model of growth
initiated by MFIs has become very costly compared to normal development credit
from banks and other Government sources. The MFIs that are supposed to mobilize
the people to get Bank loans under Differential Rate of Interest (DRI) Scheme
and other portfolios have now become merchants of their own credit portfolios.
Unfortunately, these merchants are more visible everywhere than the financial
inclusion policy and practices of banks!
Privatization:
There is a danger of the Government slowly withdrawing from its
anti-poverty programmes and allowing “Privatization
of anti-poverty programmes”. There is also the danger of Graham’s Law of
money operating, in rural areas. The danger of these new Micro Finance entrants
driving out old Community Based Organisations’ (CBOs) small Micro Finance
Initiatives.
Will this bubble explode at one point
in time resulting in greater injury to the poor? How long will this go on? Will
there be a regulatory body-self regulatory or Government controlled one – to
ensure that the marginalized are not explicated further? What matters in
Development is not the cost of operation but the causes that lead the families
to poverty!
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