Microfinance - just another form of foreign aid

waltky · 10-17-2010, 07:57 PM

Scammers movin' in on the world of microfinance...

The ugly underbelly of Microfinance
Oct 18, 2010, SKS Microfinance, India's largest microfinance player, arrived with a bang with its hugely successful IPO in August. However, the recent sacking of its MD and CEO Suresh Gurumani has opened up a pandora's box that is now threatening to expose the ugly underbelly of the sector which, many allege, is teeming with players who are no better than moneylenders but have so far been able to operate under the pious garb of poverty eradicators.

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TOI spoke to a cross-section of people associated with the sector and found that most are of the opinion that far from pursuing their socalled vision of eradicating poverty and being poor-friendly , private MFIs are actually in it just for profiteering as they are lending to the poor at interest rates as steep as those charged by moneylenders, or 'Pathaani Vyaaj' , a sobriquet derived from the ruthless moneylenders of Afghan origin who operated during the early 20th century.

Those familiar with the functioning of MFIs point out that the lending model of for-profit MFIs is not exactly pro-poor . While offering a loan, they often quote a "10% flat" rate of interest, which, on the face of it, appears like a good deal. However, there is a catch. This 'flat' rate of interest means that it will not be calculated on reducing balance. It implies that even after the borrower has paid a few installments, the interest would still be calculated on the initial sum borrowed, and not on the balance loan amount. The result is a (hidden) final rate of interest of 24-30 %, or even higher for the poor who can barely afford a square meal a day. "Microfinance, as practised by MFIs is unethical to the extent that it evades the truth in lending," said R Balakrishnan, a financial market veteran turned independent adviser . The high rate of interest is also leading to defaults and fraud. Recently , there has been a spurt in suicides in Andhra Pradesh and Orissa, allegedly due to harassment by MFI agents who started resorting to strong-arm tactics to recover loans as chances of default rise. M Subba Rao, of NGO Masses, who trained under Grameen Bank founder and Nobel prize winner Muhammad Yunus in Bangladesh, describes the cases of alleged harassment by MFIs as the result of 'irresponsible lending' . "There is high pressure on the staff (of private MFIs) to lend. They have targets to meet and they dump money (on people)," said Rao.

Consider this: The loan outstanding , according to the latest estimate by Microfinance Institutions Network (MFIN), the organization of 40 MFIs, is about Rs 30,000 crore with about 3 crore poor banking on MFIs for their financial needs. While the four southern states of AP, Tamil Nadu , Karnataka and Kerala account for a chunk of this borrowing, West Bengal and Orissa too have rural poor relying on MFIs. Besides, the sector is also on an uptick in UP and Haryana.

Read more: The ugly underbelly of Microfinance - The Times of India The ugly underbelly of Microfinance - The Times of India

waltky · 10-18-2010, 03:09 AM

Addendum to previous post...

US micro loans expand
Monday 18th October, 2010 - The US microloan program has pushed up its maximum loan figure from $35,000 to $50,000.

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The US Small Business Administration has said the expansion of the microloan program means it will be able to help more small businesses.

Microloans were designed to allow small business to take part in the borrowing of relatively small amounts of money, to help entrepreneurs meet expenses for marketing, capital programs or to take on new employees.

The program has proved invaluable to small businesses or self-employed people who can't persuade a commercial bank to lend them money. In the US, it is believed about one and a half jobs have been created through each microloan.

US micro loans expand

See also:

China moving money into Africa
Monday 18th October, 2010 - China has said it will take the opportunities currently arising in Africa to expand its investment stake.

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The Chinese government has said it will continue to invest in Africa, even though it has been accused of ignoring human rights abuses in the region. Last week, Zhong Manying, head of African affairs department of the Commerce Ministry, said China still believed there was room for investment cooperation between China and Africa.

She said the country would continue to cooperate with African leaders to ensure further expansion into new sectors, such as mining, aviation and transportation, renewable energy and the financial sector.

China invested $1.44-billion in 2009 in Africa, even with Western nations criticising it over its support for regimes in places such as Sudan and Zimbabwe, which have been accused of human rights abuses.

China moving money into Africa

waltky · 10-20-2010, 06:46 PM

Could give `em a new start...

Can microfinance programs heal rape victims in Congo?
October 20, 2010 - Microfinance programs geared toward African women can actually help heal victims of rape the same way that psychological counseling does – by restoring self-respect.

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There are so many bits of reporting that never make it out of my notebooks, so many interesting things I learn that I can’t use in the space I have. Sometimes, one of those bits just keeps pestering me. Right now, it’s this one. Earlier this year, I did a pretty massive report on the use of rape as a tool of war, for Congressional Quarterly Press’ Global Researcher (subscription). I talked at length with Desiree Zwanck, the gender advisor at Heal Africa, a hospital in Goma, eastern DRC, about how women recover from rape. I thought we’d talk about medicine and social stigma. Instead, we talked about money.

Not exclusively. But the most interesting thing I learned from Zwanck was this: Micro-credit programs were doing the kind of work usually attributed to psycho-social counseling. They restored women’s sense of self-worth. They bolstered women’s respect in the community. They returned women, in their own homes, to productive partners in their families. Zwanck told me, “A lot of families here are in such dire need that they are actually more inclined to accept the woman back into the household when there is an economic incentive for it.”

I can feel the well-intentioned, anti-neo-colonial, pro-feminist bile rise, but hold on a second: This is not one of those moments where things look all rosy but when you peel back the Otherness, you’re appalled at all the theoretical sins being committed. Micro-credit works in part, Zwanck said, because it accepts how Congolese women view themselves.

“Of course from a Western perspective, you’d say this actually reduces the woman again to just a material gain, [something] a family can get out of her. It focuses on her productive capacity and not on her value as a human being,” Zwanck acknowledges. “But…their perception of themselves is not so much individual as it is part of their families, and of their vision of their families. When you say how has this micro-credit helped you, they will say, “Well, my children…” – they will talk about other people.”

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HerbertGoodsell · 02-15-2011, 12:26 AM

Microfinance is a field that focuses on providing a wide range of financial services to the poor. Generally people with low incomes are very difficult to take advantage of things like savings options and insurance products. Often, low income go hand in hand with a lack of guarantees and credit, making it difficult for the poor to obtain loans, invest and take advantage of insurance protection.
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internet payment

palomavictoria · 02-18-2011, 10:50 PM

Microfinance is not just about microcredit or small business start-up of loans made by microfinance institutions to micro-entrepreneur who wishes to participate in micro, but also the provision of other financial services such as micro.
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Debt

Anthony696 · 12-28-2011, 03:44 AM

“Micro finance” is often defined as financial services for poor and low-income clients offered by different types of service providers. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as “micro finance institutions”. These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to nonsalaried borrowers, taking little or no collateral.

waltky · 02-25-2012, 12:11 PM

Indians committing suicide over micro-finance debts...

Suicides in India linked to micro-finance debts
Saturday, February 25, 2012 - First they were stripped of their utensils, furniture, mobile phones, televisions, ration cards and heirloom gold jewelry. Then, some of them drank pesticide. One woman threw herself in a pond. Another jumped into a well with her children.

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Sometimes, the debt collectors watched nearby. More than 200 poor, debt-ridden residents of Andhra Pradesh killed themselves in late 2010, according to media reports compiled by the government of the south Indian state. The state blamed micro-finance companies - which give small loans intended to lift up the very poor - for fueling a frenzy of over-indebtedness and then pressuring borrowers so relentlessly that some took their own lives.

The companies, including market leader SKS Microfinance, denied it. However, internal documents obtained by the Associated Press, as well as interviews with more than a dozen current and former employees, independent researchers and videotaped testimony from the families of the dead, show that top SKS officials had information implicating company employees in some of the suicides.

An independent investigation commissioned by the company linked SKS employees to at least seven of the deaths. A second investigation commissioned by an industry umbrella group that probed the role of many microfinance companies did not draw conclusions but pointed to SKS involvement in two more cases that ended in suicide. Neither study has been made public.

Both reports said SKS employees had verbally harassed over-indebted borrowers, forced them to pawn valuable items, incited other borrowers to humiliate them and orchestrated sit-ins outside their homes to publicly shame them. In some cases, the SKS staff physically harassed defaulters, according to the report commissioned by the company. Only in death would the debts be forgiven.

Read more: Suicides in India linked to microfinance debts

waltky · 03-05-2012, 11:13 PM

Thanks to the internet, now anyone can be a microinvestor...

Internet Opens World to Microloan Investors
March 05, 2012 - The Internet is linking entrepreneurs in the developing world with investors in industrial nations through sites that broker small “people-to-people” loans. These so-called microloans go to family-owned businesses in Africa, Asia and other areas.

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A $2 loan lets a woman in Burundi start a business brewing banana beer, and a $65 loan helped a woman in Pakistan start an embroidery business that now supports 30 local families. These small entrepreneurs are featured in a multimedia exhibit called Half the Sky at the Skirball Cultural Center. Photographs, art and videos explain the plight of poor women in developing countries and how microloans are helping them. Corporate donations to the center provide each visitor to the exhibit with $1 to get them started as investors. With help from a volunteer, this man has just invested in a small business in Africa.

The Internet microloan site Kiva is one of several partners in the project. Kiva's own website at www.kiva.org lets people invest small amounts of money in entrepreneurial projects from their homes, or any place with an Internet connection. The organization works through local micro-finance institutions in developing countries, and notes proudly that its clients’ repayment rate is over 98 percent.

Writer Bob Harris has invested in nearly 4,000 small businesses, and has visited many of them while researching a book about Kiva. “It's everything from clinics to schools to farmers, crafts people, urban transportation people - taxi drivers - pretty much anything you can come up with,” Harris said. Some investors, like Armenian-American computer consultant Peter Tashjian, focus on a single region. He lends to Armenians so that those in cities can expand their businesses, and those in the countryside can buy an extra cow or sheep. “And they actually are able to feed their families and make extra cheese and milk to sell in the markets,” Tashjian said.

Bob Harris got involved in microlending after exploring the world as a travel writer and seeing poverty in the shadow of exclusive resorts. He has inspired a loose-knit group on the Kiva website called Friends of Bob Harris, whose members have invested more than $1.6 million. “And everybody who does it for any length of time and reinvests the money, it’s really kind of cool … Let’s see, the bicycle delivery guy in Nicaragua paid me back. I think I’ll invest in this student in the Philippines,” Harris said. These people say the Internet has forged new links, both social and commercial, that help others around the world pull themselves out of poverty.

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