Thursday, February 3, 2011

‘IT IS TIME FOR NGOS/SHGS FEDERATIONS TO LOOK INTO MFIS’REPULSIVE SIDE OF MICRO FINANCING’.

What are the motives of a few former NGO functionaries who are now the operators of larger Indian Microfinance institution (MFI)? Are they into this for the greater common good or they smart businesspersons. The Micro Finance Institutions, instead of providing credit at affordable interest rate, exploiting the situation and looking for a return on investments in excess of 30% p.a. The borrowers pay exorbitant rate of interest. Most of their income goes for servicing the debt with no savings. This kind of situation is no better than the one the poor borrowers had experienced with the traditional moneylenders. They also defeat the very purpose of establishing the Micro Finance Institutions. The ultimate goal of micro finance is to enable the poor to build assets, increase incomes, reduce vulnerability to shocks and economic stress and improve quality of life by enabling better access to education and health-care. How can they do that with that kind of interest structure? Micro finance should not be viewed as a business venture where one can expect very high return on investments. Governmental and statutory regulations, including the imposition of an interest-rate ceiling, are bound to happen. More importantly, the sector, which sucks the blood of the poorest of the poor, does not deserve any support. And the hapless borrowers continue to live in abject poverty. Several such MFI operators were in a hurry to scale up operations so that more and more people could “benefit” from quick finance options via their MFIs. And they succeeded — such institutions in India cover some millions of families; ten times that of Muhammad Yunus’ Grameen Bank. Social activists said that the poor just need timely finance irrespective of the steep interest rates. While Grameen Bank offers credit to the poor without a profit motive in mind, most Indian MFI operators do not see anything wrong in making profit at the cost of the underprivileged. The microfinance sector has until recently been hailed as a savior of India's poor for providing loans averaging 250 dollars to millions of borrowers ,often small entrepreneurs unable to get credit from mainstream banks. But the micro financiers' surging profits, accusations of coercion and interest charges that can exceed 30 per cent have led to mounting controversy with some critics accusing them of becoming grasping moneylenders. It is sad to see that thousands of helpless people fall into the trap of high interest debt and its painful repayment. Recently, suicide deaths have been reported in Andhra Pradesh. The Andhra Pradesh government had to rush in to stop the exploitation unleashed by the MFIs in the garb of providing help to the financially weak. Grameen Bank or NGOs may not have huge market shares but at least they do not drive poor people mad when it comes to repaying loans. The Andhra Pradesh microfinance ordinance was issued for protecting the Women Self Help Groups (SHGs) form exploitation by the microfinance institutions through usurious interest rates and coercive means of recovery. http://img.ibtimes.com/www/site/us/images/1px.gif“Over the past 5-6 years, there have been several serious concerns about the MFI practices in India. Some efforts have been initiated to address the issues related to coercive recovery practices, high interest rates and multiple lending. However, the MFIs do not seem to pay attention to the issues raised by NGOs and the organizations of the poor. Now it has become a crisis,” say the pioneering support organisations in the field of SHG promotion. Emphasizing on the need for the organizations that are working for poverty reduction and in support of the community based organizations engaged in microfinance & livelihoods to get together and come up with a clear action program, the genuine NGOs say, “We can’t allow the poor to suffer from the current situation. NGO Federations should take a lead to organize a meeting of organizations interested in SHGs and the SHG federations and more specifically in the empowerment of women.” NGO functionaries view that the key is to help to create viable enterprises of the poor, something that’s actually countered by the high-cost financing that is currently offered by MFIs. “People require not just microfinance but also knowledge, collective institutions and their enterprises being linked to the market in a sustainable way – there have to be a holistic value-chain approach’ said Ambika, a SHG Federation leader. Please note that in the name of helping poor, MFIs are exploiting the poor. MFIs should be run on the lines of NGO. I have interacted with beneficiaries who confessed that there is no difference between money lenders and the MFIs who are charging around 30-40%.A few genuine NGO sector functionaries those worked for poor friendly projects, now switched over to MFIs for their survival too, not knowing the real intricacy of operating MFI in unethical models thus resulting harm to the poor especially women, knowingly or unknowingly. During Rajiv Gandhi tenure as Prime Minister of India, he directed several Departments to support NGOs to take the Government projects to the neediest and disadvantaged population of India projects such as elimination of child labour, Adult Literacy and female literacy, rural sanitation, drinking water supply, social justice projects, on conventional energy, SHG projects, livelihood promotion, appropriate technology etc. Today most projects are being implemented by the District Collector by creating a registered society and NGOs are kept away, more and more qualified persons in Social work, they are not getting any opportunity in NGO sector, as the NGOs Heads are also in doldrums as Ngo Implemented projects are being implemented by District collector or politically motivated corporate promoted NGOs and also directly by corporate. No additional funds available for social justice and empowerment and other welfare activities and major corporate sector are being given the responsibility of imparting vocational education training programs. What made Government of India to shift the NGO friendly implemented social and livelihood projects to corporate to implement such micro projects for the benefit of the remotest person living in rural India. Universities start several vocational courses with heavy payment for the school dropouts etc, what happened to Vocational stream of NIOS and JSS. The private holders of JSS are making money for their own and not reaching the school dropout youth, why cannot such projects are given to genuine and long standing NGOs and encourage them to work more intensively for the betterment of the most needy population.’ When the committed NGO functionaries go out of Job, the MFIs trap their services reaching to reach the rural population for their business, for survival of the NGO workers, they fall in such traps of rich MFIs and their work go against the interest of poor and needy, thus the innocent NGOs field workers loose the track of NGO movement and get into money making boxes, the so called MFIs. Is there any business in rural India today fetch more than 20%, return on investment.Nothing of that sort, then how come an entrepreneur return the loan taken with  30-40% rate of interest p. a. to MFIs’ a Trichy based NGO head questions.ENS 


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