Tuesday, December 21, 2010

Micro-finance crisis India?

[Micro-finance companies] engaged in gross over lending in a sad rush for profits.
--Swaminathan S Anklesaria Aiyar (economic analyst)

Source: BBC

Micro-finance has become big business. Instead of lending out money to smaller communities that will be able to start up way of living, lending out as much money as possible, without thoroughtly checking the lendee's ability to become self-sufficient, has become the goal. This will form (and is already forming) a disaster and a deep financial hole will be yours.

Is this the fault of micro-finance becoming big business? No, micro-financing has become business because other people are making money out of it.

Is this wrong? No, what went wrong is that decisions have been made that could no longer guarantee the sustainability of the model.

Instead of lending out money to people that will be able to profit from the loan and still be able to pay the loan back, the focus shifted to lending out as much money as possible so that the yearly statistics of the micro-finance companies would be attractive enough for more investment.
Candidates for the loans had to enrol in projects that were bigger than they could handle or loans were handed out for the wrong reasons (to pay of another debt or to buy TV sets).

I believe in micro-financing, but the focus has to be right.

1 comment:

  1. Articles on suicides amongst Indian farmers:

    * "More suicides than reforms in Indian agriculture" by K. S. Harikrishnan, IPS (on DeWereldMorgen - in Dutch)

    * "When death becomes a way out" from The Hans India


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