Friday, October 15, 2010

Micro Credit – Macro crisis

The Father of Microfinance and Nobel peace prize winner Mr. Muhammad Yunus would never expect that the social mission of microfinance is going to be bad in India. He is the founder of Grameen Bank and he developed the concept of Micro credit model In Bangladesh to eradicate the poverty in rural community. The fundamental of microfinance / Micro credit is to empower the poor people by giving the small loans with low interest rate. In the past few days, 24 number of rural Micro finance borrowers have committed suicides in Andhra Pradesh who are harassed by the Micro Finance Institutions (MFIs).

The Andhra Pradesh state government has been following the best model of Indira Kranthi Patham by Society for elimination of Rural Poverty ( which arranges the loans from nationalized banks to the Self help groups with subsidized interest rate. In the early 1990s, the Development of Women and Children in Rural Areas (DWCRA) model was also very successful one in Andhra Pradesh. From the past few years, the micro finance sector is growing massively. Most of MFIs are forcing the poor women to enroll and majority of them are already members in self-help groups who are well nurtured by the Government schemes. They indulge in very unethical practices in collecting their loan money. The MFIs are humiliating and dampen the self respect of the borrowers, those deeds are pushing them to suicides. The MFIs are charging very high interest rates i.e more than 30% per annum from the poor borrowers and enjoying this money with high paid salaries and perks to their CEOs. They are just like private money lenders in corporate way by utilizing the Self Help groups.

On October14th, the AP state government came out with legislation to control the MFIs. That is a good sign to help the poor rural borrowers from the clutches of fraudulent MFIs. As per new ordinanace, the government is going to help the MFI’s victims by debt-swapping through commercial banks by providing new loans with low interest rates. We hope the new ordinance will control and regulate the Micro finance system and Reserve Bank of India intervention must be required to formulate the guidelines for MFIs. The ordinance is here: