BUSINESS MODELS OF MICRO FINANCING INSTITUTIONS NEED HOLISTIC CHANGE TO ACHIEVE THE DESIRED OBJECTIVE OF EMPOWERING POOR TO ATTAIN CAPABILITY AND CONNFIDENCE TO EARN THEIR L IVELIHOOD WITH DIGNITY AND EASE
Journal Title: International Journal of Management, IT and Engineering - Year 2012, Vol 2, Issue 8
Abstract
The recent spurt of suicides of farmers in various states of India particularly in Andhra Pradesh where MFIs have blossomed and provided a role model for other states to develop and nurture such institutions in their respective states to outreach poor people for alleviation of poverty and empowering them to undertake sustainable business and or farming. In fact in recent years these institutions have been highly acclaimed as most effective and sustainable institutions to outreach poor to fund them without any collateral to undertake some productive activities and also to assist them to meet some of their constant consumption expenditures also. In fact MFIs are gradually attaining the status of ‘messiah of poor people’ in some of the developing countries of the world. However models adopted were not always akin to each other. For example Grameen Bank model as developed in Bangladesh and in many other developed and developing countries of the world and widely acclaimed as poor man’s bank has not been adopted by Indian MFIs. There are formal and informal models developed over the years of purveying micro finance to the disadvantaged poor people. It may be interesting to note that most successful models so far developed are informal models. These informal models are conceived around ‘group’ of members residing in a village and agree to guarantee payment in case of default of any member for one reason or the other. Such groups work better when they voluntarily come together to resolve their credit and savings problems. Grameen Bank is most illustrious example of this model. It was started by Dr Mohd. Yunus to fund wives of landless farmers in Bangladesh. Over the years it proved to be a very successful model as the groups were cohesive, receptive, voluntarily formed and extended loans for even consumption needs. Its success led it to become formal banks to garner savings of the poor and lend them without any collateral adequate funds to meet their emergent consumption and production needs. Another informal mode called as ‘NGO’ has been developed in India , Ghana and Gambia to outreach poor women to fund them without any collateral at a rate of interest decided by the group forming the NGO. The rate of interest charged though quite high but definitely lower than usurious rate charged by the moneylenders. However these institutions largely depended on donor funds and savings of the groups. It is obvious therefore that these informal institutions succeeded well where donors were available and quality of service provided was comparable to any successful financial institution. Similarly another informal group called Self Help Group has been conceived and nurtured by NABARD. These groups were formed by women mostly to undertake some business to supplement their family income. These were funded by the commercial banks and refinanced by NABARD. In recent years these are also getting finance directly from NABARD. Over the years many formal institutions have also been developed to alleviate the poverty of the poor. MFIs are one of the latest and generally considered as one of the most successful model so far developed for the alleviation of poverty of disadvantaged people in our country. In fact its rapid and successful growth almost convinced most of us that at last we have been able to conceive and develop an appropriate model to serve our poor. But the fact was that all successes proclaimed by these institutions were not true as most of successes could be traced from unhealthy practices followed by them both while giving and collecting loans. In fact these institutions not only charged very high rate of interest but also adopted coercive and dubious ways to collect their dues. All these remain under the carpet as these institutions have been operating almost free from any oversight by the regulatory authorities or the government. SIDBI in India has been designated to fund MFIs and also help these institutions to upgrade their technology to enable them to outreach poor people with least cost and maximum convenience. However despite these MFIs in general continue charging very high interest rates as they claimed that they source fund at high rates and undergo high risk as they lend money without any collateral.
Authors and Affiliations
Dr. S. N. Ghosal
Keywords
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