Saturday, March 19, 2011

‘Micro Finance Institutions makes poor women poorer’

‘Micro Finance makes poor women poorer’ said Mrs.P.Vanitha,a SEVAI promoted SHG Federation Leader,  in her sharing with the participants of  two days seminar organized by Bharathidassan University on impact of Micro financial institutions on inclusive growth of women. He further said’ ‘The failure of banks to provide timely credit is forcing self help groups (SHGs) to borrow from microfinance institutions (MFIs) at awful rates of interest. To meet RBI targets on priority sector lending, banks are taking the softer option of lending to MFIs instead of SHGs directly. As MFIs take responsibility for loan disbursal and recovery, this is an easy way out for banks.” he added.” However Mahalir Thittam plays a crucial role to link SHGs to have better access to bank credit in Tamilnadu as the state government is actively promoting them and putting pressure on banks to provide funds. “TN has various programmes to help SHGs use bank credit for income generation activities, ”
Dr.K.Govindaraju,Founder of SEVAI in his valedictory address of this program  said.'despite better access to bank credit, MFIs are also more active in tamilnadu as the number of SHGs and their demand for credit seem to be higher. The Nation has been observing with concern the growing exploitation of poor women in self-help groups by unscrupulous microfinance institutions that are charging steep rates of interest and thereby forcing the already impoverished sections into a further debt trap. The strong-arm tactics employed by commercial and profit oriented corporate MFIs for enforcing loan recovery are leading to untoward incidents of poor people. The number of these MFIs is also growing because banks have not yet developed a women friendly infrastructure necessary for catering to the self-help groups. More significantly, formal banking institutions have failed to meet the credit needs of poor women. It is reported that 35 MFIs in the country are controlling 85 per cent of the market, most of which is comprised of poor women. It is therefore important that the government of India must intervene and ensure that the interests of the poor are safeguarded from the greedy profit motives of this new breed of moneylenders. This shows that by and large the MFIs are exploiting the people by levying very high interest rates and subsequently resorting to forceful collections as poor women are not being able to meet their demands. The modus operandi of these institutions is devious and results in undue harassment of the indebted women. Exploiting the situation that there are a large number of, these institutions are targeting poor women, often in the name of eradicating poverty and offering welfare programmes for the poor. Once an MFI is able to persuade some women to form a SHG, the former imposes stringent conditions and pushes the hapless women into a debt trap. The MFIs get loans from commercial banks with the permission of the Reserve Bank of India (RBI), and then give out loans at high interest rates by using the slab rate method. They also collect deposits even before giving out loans. “If the government programmes does not reach all sections of the population and MFIs will immediately step in to fill the gap,” said Dr.K.Govindaraju. “In Tamilndu, some MFIs targeted SHGs, which were already borrowing from banks, and gave them loans aggressively. This saw SHG members borrowing from multiple sources and wading into a debt trap. Banks typically charge 12 per cent interest rate to SHGs, which in turn may lend to their members at 15 per cent per year.  SHGs borrow from MFIs at rates ranging between 24 and 36 per cent per year. The authorities should move in to regulate MFIs; they should not turn off the tap for timely credit. .Micro-savings on its own appears to have no impact on incomes of poor; both micro-credits had increase women’s expenditure.  The evidence of the impact of micro-credit on education is varied with limited evidence for positive effects and considerable evidence that micro-credit may be doing harm, negatively impacting on the education of clients’ children. There is no evidence that micro-credit has any impact on job creation. Micro-credit in particular, also has potential for harming its clients with high rate of interest and lower return on investment’, Director SEVAI added.He added that Failure to increase income, something which can be determined by external factors, as well as the ways in which clients spend their money, can lead clients into further debt, leaving them unable to invest in their savings of micro-credit. Successful increases in income, the successful repayment of loans, and the accumulation of financial wealth are not all feasible, mainly the borrowers are not given proper training   on calculating reducing rate of interest and return on investment calculations.  Micro-credit and micro-savings are doing harm, to the lives of the poor whom they purport to serve. Cautious implementation and further rigorous evaluation are required if these interventions are to alleviate rather than deepen poverty.' Dr.K.Govindaraju concluded.
Dr.Malcolm Harper, from UK, Dr.Manimegalai, Director, Women studies of Bharathidassan University delivered key note address in this function. The Nationalized banks should come forward for giving loans liberally at farmers’ rate of interest at fair percentage not exceeding 9% rate of interest. He added that the only governmental programs are not the answer to eliminate poverty. Economic freedom is what allows prosperity; economic freedom is more than an absence of bad regulation.  There are a lot more of the poor to be done.   Etram News Service.

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