MICRO FINANCE INSTITUTIONS : CREATING DEMON TO FIGHT A DEMON

                  AS PUBLISHED IN FREE PRESS INDORE EDITION ON 09/03/2011

Be it politics or economic strategy like Financial Inclusion, Governments behave alike. In a desperate bid to resolve a problem it creates another demon to fight the existing demon. After its phenomenal success in Bangla desh,  the Non-profit Micro Finace Institutions (MFIs) are being considered as harbingers of inclusive growth and rural development. But by allowing private For Profit MFIs, Government has defeated the very purpose of providing affordable credit to the deprived lot  dwelling in the  deeper pockets of  rural India. A lot of new agencies / companies have cropped up as MFIs  and some of the them  have  even  floated their shares in the market to exploit  potentials of these new found oil wells.

In less than a year, reports have started pouring in that these new MFIs are charging unreasonably high rates of interest and using coercive methods of recovery. They have emerged as another breed of  private money lenders in rural India. In addition to this, they are overlapping their operations  with  the already banked areas and  competing with those commercial banks who are providing them loans for micro-finance activities. The father of  Micro finance and Noble laureate Mohammad Yunus has also criticized this Indian  version of MFI  for ignoring social service aspect of  this noble concept and suggested a cap of 20% for interest rates.

Ignoring all those warning  signals and  the recommendation of its own Y.H.Malegaum committee on MFIs , RBI, in its recent circular, has maintained a status quo on the working of MFIs and decided not to interfere in their interest rate regime.  It is difficult to understand , what sort of financial inclusion , Government wants to achieve through such MFI monsters.

Bharat Sharma

C-44/8 Bargad, Rishinagar Extension

Ujjain