Microfinance has come into the limelight for quite a few decades but not so conspicuously before Prof. Muhammad Yunus and his Grameen Bank shared the Nobel Peace Prize in 2006. A prestigious award like this however has shifted the focus from a small irritant concerning the conferment of it not for innovative economic theories or proposition but for peace. Be that as it may, the fact remains that a Nobel Prize is a Nobel Prize.
One troubling question, though, is: if micro-credit, a component of microfinance, has been serving the intended purposes. True, individual entrepreneurship and even collective enterprises have received a shot in the arm and the number of beneficiaries has by now grown significantly. Yet it must be admitted that the proportion of the positive outcome of the exercise has been very low compared to the countrywide operation by different microfinance organisations.
Micro-credit success stories have received media attention far more than the sad tale of poor and hapless recipients of loans. When borrower families -not just one or two -but a significant number of a village -are either compelled to sell their last land asset of homestead in order to repay the loans or simply flee home for an uncertain future in cities or, in some extreme cases, in a neighbouring country, the benefit of micro-credit becomes seriously suspect. Unrelenting reproach, misbehaviour and pressure from group members and the representative of the microfinance body at the grass-roots level become too overbearing for some and the compulsion for extreme measures is inevitable. Â
By definition microfinance ought to serve the very poor who have no access to banking and related services. But the system that forces the poorest to pay the highest interest for the loans they accept perhaps calls for a thorough review. Sure enough considerable progress has been made in developing a viable commercial microfinance sector but much remains to be done in order to address the problems facing the poorest among the poor. Even those with some assets have not proved worthy clients when it comes to gainful investment in productive activities. The global average interest and fee rate has been estimated at 37 per cent, with the highest rate peaking to 70 per cent in some markets.
This means, borrowers have to earn at least 37 per cent return on the loan they accept. In case they fail to do so, they are likely to become poorer. The moot question here is: how many of the borrowers do actually invest in trades or income-generation activities instead of family consumption. Necessity knows no laws. The poor grab the slightest chance of receiving money in critical situations such as when they have no means to feed family members, to meet costs of funerals, wedding, house repair or construction, treatment etc. In desperation they accept such high-interest-bearing loans. In many cases, borrowers take loans from several microfinance organisations in order to pay instalments of one of those from loans taken from another.
Loan distributors at the grass-roots level take advantage of the groups they form mainly among women from poor families. Peer pressure, presumably, works as the most vital element for realisation of loans distributed. But at times no such mechanism works when the total amount of loans from different organisations far surpasses the assets possessed by the defaulting borrower. Clearly not all is well on the microfinance front. The argument that the poor people's credit-worthiness has to be brought under closer scrutiny has been dismissed by a group of development proponents. They object to such restricted loan distribution on the premise that the rich and the privileged have no business in meddling with how the poor people will spend their loans.
Objections like this may be accepted up to a certain point but undeniably the poor need some guidance in properly investing the loans they receive for improving their condition. Also, the high lending rates have to be brought down to the minimum possible level if the poor are to be given to enjoy benefits from microfinance credit. To enhance the effectiveness of microfinance as a poverty-fighting tool, there is a need for a comprehensive package depending on areas and opportunities available there. Zidisha, an online microfinance platform based in the United States, has started its journey from Kenya, promoting direct peer-to-peer micro-lending at a very low interest rate.
If such efforts can be replicated with necessary readjustments in the areas of extensive monitoring and interaction with borrowers, not entrepreneurs alone but also poor people not famous for enterprising skills can indeed reap benefits from such loans. To that end, greater focus should be directed at a micro-credit paradigm shift. The new paradigm concerns reducing the many vulnerabilities poor people are exposed to and managing assets for them to fall back upon in times of crises. Here the emphasis is obviously on health, economic and social well-being of the poor class. If the poor have access to low-cost credit and get the expert advice to roll money for production, repayment and savings, preferably by way of a collective exercise, their lot is most likely to improve in the days to come.
nilratanhalder2000@yahoo.com
Making the most of microfinance
Nilratan Halder | Published: March 13, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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