Micro-credit operations should be user friendly
Friday, 22 January 2010
Mujibul Haque
Borrowers of micro-credit in the first place should be the poor or the hardcore poor. But studies conducted by responsible developmental agencies from time to time showed a notable number of the recipients of micro-credit are well above the two categories.
One does not see it a difficult job for the government to lend poor people at much lower rates of interest because the government should not be profiting by charging the poor higher rate of interest. Disbursing credit to the poor to make big financial gains cannot be the aim of the government, which claims to have taken measures to reduce poverty.
The recommended lower rates of interest on micro-credit should meet both the needs of viably run official micro-credit operations while also meeting the intended objectives of these programmes. The NGOs, in many cases, also charge high interest on micro-credit provided by them. They also need to be persuaded to significantly decrease the interest rate they charge and ought to base their credit operations truly for the benefit and advantage of the poor and not for only making good profit out of such operations.
Although there has been expansion of small credits for the poor from institutional sources they still remain, in many cases, victims of private money lenders or 'mahajans'. Studies on micro-credit show that mahajans continue to be a big factor in the micro-credit operation exploiting the gap created in institutional micro-credit activities.
This indicates that there is a need for the expansion of network of institutional microcredit by both the government and the NGOs. But such expansion of network by them needs to be accompanied also by adequate lowering of the interest rate charged on the credit. It is also imperative to enact laws and enforce them strictly to curb the activities of mahajans who, in many cases, simply fleece their clients.
Borrowers of micro-credit in the first place should be the poor or the hardcore poor. But studies conducted by responsible developmental agencies from time to time showed a notable number of the recipients of micro-credit are well above the two categories.
One does not see it a difficult job for the government to lend poor people at much lower rates of interest because the government should not be profiting by charging the poor higher rate of interest. Disbursing credit to the poor to make big financial gains cannot be the aim of the government, which claims to have taken measures to reduce poverty.
The recommended lower rates of interest on micro-credit should meet both the needs of viably run official micro-credit operations while also meeting the intended objectives of these programmes. The NGOs, in many cases, also charge high interest on micro-credit provided by them. They also need to be persuaded to significantly decrease the interest rate they charge and ought to base their credit operations truly for the benefit and advantage of the poor and not for only making good profit out of such operations.
Although there has been expansion of small credits for the poor from institutional sources they still remain, in many cases, victims of private money lenders or 'mahajans'. Studies on micro-credit show that mahajans continue to be a big factor in the micro-credit operation exploiting the gap created in institutional micro-credit activities.
This indicates that there is a need for the expansion of network of institutional microcredit by both the government and the NGOs. But such expansion of network by them needs to be accompanied also by adequate lowering of the interest rate charged on the credit. It is also imperative to enact laws and enforce them strictly to curb the activities of mahajans who, in many cases, simply fleece their clients.