Thursday, October 28, 2010

Thursday's Truths - Microloans Make a Difference!

My apology to my faithful viewers. I have not had an opportunity to post since last week! There are a lot of exciting things happening with the WWRG network, including last evening's event put on by our local chapter of 85 Broads which featured the Grameen Foundation and their work to provide microloans to women in disadvantaged nations so that they can lift themselves and their children out of poverty.

I was honored to be a Power Host at the event, and led a group of women ( and a few enlightened men!) through a exercise on how the process of loan making works.

The impact of these loans is impressive. Here are a few statistics courtesy the Grameen Foundation:

  • 9.4 Million...
    ...of the world's poor have been helped by our MFI partners, allowing them to begin their journey out of poverty.
  • More than 1 Million...
    ...microloans have been generated through our Growth Guarantee program. (Estimate based on average loan size.)
  • $160 Million... local currency has been leveraged to support microfinance programs in 13 countries.
  • 25,000...
    ...Village Phone operators are working in 6 countries around the world.
  • 300,000...
    ...daily transactions are supported through Mifos at microfinance institutions around the world.
  • More Than $2.3 Million... in-kind services have been contributed by 140 Bankers without Borders volunteers in 9 countries.
Many of you know that I am committed to getting the word out about Global Women's Issues including the fact that greater than 70% of the world's poor are women and children.

I encourage you to support organizations such as the Grameen Foundation and others like it. Also, please familiarize yourself with the UN Millennium Goals, which seek to eliminate world poverty by 2015.

1 comment:

  1. When we started out in development a couple of decades ago, we instinctively targeted to reduce the influence of money lenders, if not eliminate them completely. Why? They were the traditional oppressors and exploiters in society. Micro-savings and revolving loans worked very well until the most fancied MFIs burst into the scene. MFIs operate under these two beliefs: “Having access to expensive credit is better than no credit” and “the observed rate is where demand equals supply”. These two beliefs were ironically the very same fulcrum the traditional money-lenders operate with.

    The result is an “Animal Farm” situation where we are now not able to distinguish between “pigs” and “humans” and vice versa. In fact, money-lenders have got a make-over by packaging themselves as MFIs. A good example is Mohd Yunis of Grameen Bank comes from a traditional money-lending caste. And of course, he got the Nobel Prize and so did Al Gore & Pachauri. Thank God the Nobel Committee did not confer Gandhiji the same distinction, by clubbing him with these scamsters.

    The IPO of SKS, one of the largest MFIs in India, saw it over-subscribed by 15 times; their Ten-Rupee share was priced at a premium of Rs 985 - showing how much the market had confidence on their profitability while “banking with the poor”. The promotors of SKS became multi-billionaires over-night! MFIs argue that they have to charge high rates to maintain profitability. Profitability, which even private banks couldn’t match! Profitability that permits SKS to pay Rs 1 crore as bonus to their just fired CEO!

    And how do they attain profitability?

    A month ago, SKS in the state of Andhra Pradesh was accused of a series of farmer suicides that prompted the state government to introduce new restrictions on the microfinance industry by seeking to cap lending rates and end coercive means of recovery. Last week alone, Andhra Pradesh police arrested three loan agents of SKS Microfinance and Spandana Sphoorty Financial Ltd. after borrowers complain that they were illegally pressured by the agents to repay their small loans around $1,300. For those of us in the field, this conduct of MFIs is no surprise.

    MFI research puts irinterest rates between 25-30%. But my experience (and this is my 30 years in the field) put this figure several times higher. Even if we take this range which they described as the lowest in the world, the only benefit of such loans is for working capital and not capital formation. What is the kind of subsidies Rata Tata gets to produce a one lakh car? We all are aware that a mere 0.5% rise in banking rates can crash the stock market, so sensitive is their profitability linked to interest rates. Compare this with those the poor is asked to bear.

    AP’s share of outstanding microfinance loans represents nearly 40% of the sector’s total portfolio, according to CRISIL. Now if MFI is all about access to the poor, we can ask the question, why the clamour to be concentrated in a state which belong to top-five in development in the country? We would have thought they would have gone to the five lying at the bottom rung of the country. But no, they avoid it like plague. It is easy to see they do this on repayment potential of states. The interests MFIs pursue are interests of self sustenance and their own growth. The poor is hardly in the radar except for rhetoric. In fact, it is on the blood and coercion of the poor, MFIs like SKS can giveaway Rs 1 crore as bonus to the CEO.

    The sooner MFIs are seen as profit enterprises, the better. The longer they pretend they are pro-poor, the longer they discredit the NGO sector that gave birth to a Frankenstein. Rather than regulate MFIs, I for one will welcome the day of their demise.