Friday, December 24, 2010

Micro Finance Institutions, the Indian scenario


Organizations that offer financial and banking services to low income people are called Micro Finance Institutions (MFI). Low income population, more specifically poor people, who do not have any assets for mortgage formally and/or proper employment cannot get credit benefits from the mainstream financial institutions like banks. These MFIs accesses financial resources (money) from the banks and give the poorer people the benefit of credit. Their prime target is to help microentrepreneurs (from the low level income strata).


Some of the main goals MFIs try to achieve through their services are to understand and identify what helps people to move out of poverty by creating self-employment opportunities. And, they also provide financial resources to the under-previleged and train them in putting the resources to their best use and generate income and employment through it. Micro financing is also profitable because if properly it can generate upto 50 percent returns on investment and it also helps the clients to pay higher interests.


One of the major challenges that our MFIs come across in promoting micro-financing is the client illiteracy and lack of experience managing their finances. This requires people trained in micro-finance to deal with people in training them, and their unavailability affects the growth of the organization. And other challenge is in distributing the funds that government releases in support.

The Indian Scenario

Major Indian population resides in villages, and there has been a consistent effort by various governments after independence to develop rural India. The governments have tried to reduce poverty by providing grants, subsidies and credit through the main-stream banks. But these schemes proved to non-profitable for the banks and often led to their misuse. And it was also ineffectiveness on the governments' side in helping out the targeting beneficiaries. This scenario gave a platform for local money lenders to dominate the poor by lending money at exorbitant interest rates, which often leads to selling of assets and suicides due to inability to pay the debts. This has also led to the urban migration in search of a better living. With this, India adopted the micro-credit concept.

Just like anything else, the MFIs could not even protect themselves from the face of corruption in India. These non-profit organizations with a 25,000 Crore INR industry gradually turned out to operate for profits. And these "for profit" MFIs have grown spectacularly in the recent times by charging greater interest rates. Which made, MFIs a paradox in India. A recent study revealed about the coercive practices used by some MFI agents to recover the loans. There were incidents which have led to lots of suicides in the recent past, and which were allegedly coerced by the agents so that the loan money gets repayed through their insurance. And, government has recently taken steps to monitor these MFIs after they have faced the allegations at various levels.

But do these people, who face hardships through out their life for making a living, need to face exploitation at this level also?


  1. MF reminds me of Mohammed Younus! The way ahead!

  2. Certainly the way ahead! Wish there is no corruption in this...

  3. Vee, a good way of spreading awarenss around. U wrote in simple words.... and a valid question asked... but really it's a curse to be born in a poor family in our country.

  4. That was a revealing post. When corruption is so deeply entrenched in the psyches of the people, how can even non-profit organisations be above them?
    I would like to know more about the NGOs that are using agents to coerce the poor for repayment. Can you give the links if you have them?

  5. Restless -
    Yeah, I was reading a news article and I wanted to write about this so that more people would be aware of what is going on in the nation.

  6. Zephyr -
    I don't remember the names of the NGOs, but very recently government has taken measures to avoid any such happenings by creating a board of some kind for this. There is an article on this coercive procedures in all major news papers recently.

  7. MF being good or bad is still being debated. unfortunately when personal financial gains take precedence over the vision of a project things fail... Indians have an art, exploit the one you can.. why? coz someone more powerful than me won't hesitate either.

    It can really do wonders if handled, managed well.. if one man can make it work in Bangladesh then why not us?

  8. Delhizen -
    That's aptly put! I have observed the same thing happen at various levels. My classmate in college would rag his junior because he was ragged by his senior. A mother-in-law would expect utmost respect from her daughter-in-law since she was made to do so by her mother-in-law many years ago. And people's mentality will follow the same in case of corruption too!!
    Bangladesh case is really mind blowing! It was handled perfectly well there.


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